Africa Must Rethink Debt Accumulation

Published on 4th September 2018

Africa is plunging into a new debt crisis, with 40 per cent of the region’s countries at high risk of debt distress — double the proportion of five years ago. In a bid to play rapid catch-up with advanced economies, Africa has developed a huge appetite for external financing that is brokered by elitist groups keen to receive kickbacks at the expense of sound economic sense.

The continent is in jubilation that UK will pump £4 billion in African economies. China will extend US$60 billion of financing to Africa and exempt least developed, heavily indebted, poor, landlocked and small island developing countries that have diplomatic relations with China from interest-free Chinese government loans due to mature by the end of 2018. This should not be an occasion for celebration.

In the 2012-2017 period, Moderate borrowers mostly borrowed for consumption instead of investing. Heavy borrowers, on the other hand, did not invest efficiently in the same period. Borrowing countries did not necessarily using this debt efficiently. It is time Africa exercised prudence and became wary of countries keen to extend geopolitical influence and lopsided dependent relationships. African countries must develop the appropriate fiscal space and domestic resource mobilization to service debt, increase investment efficiency, rethink infrastructure financing, and fully embrace innovation in order to leverage disruptive technologies to boost productivity.

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