According to a report, East Africa is the most indebted region on the continent

As a result of the increasing cost of financing, Africa’s loans in default reached a record high of $149.4 billion in 2022, the highest level in three decades. This coincided with delayed repayments.

A global wave of interest rate increases to combat inflation, Russia’s invasion of Ukraine, and the Covid-19 pandemic have all contributed to the debt crises that have affected numerous countries on the continent.

East Africa is the continent’s most indebted region, according to the most recent study conducted by the African Export-Import Bank (Afreximbank). Kenya and Tanzania are among the top sovereign loan defaulters.

The debt-to-gross domestic product (GDP) ratio of the East African economies was 54.5 percent during the seven-year period (2017-2023), while the average for Central African economies was 35.4 percent during the same period. The economies of West Africa were rated second, while North Africa and South Africa were ranked third and fourth, respectively.

The report, “State of Play of Debt Burden in Africa 2024: Dynamics and mounting vulnerability,” demonstrates that the quantity of impaired loans obtained by African countries increased from $112.2 billion and $100.2 billion in 2021 and 2020, respectively, to $149.4 billion in 2022.

According to the report, these defaults have not only precipitated financial crises but have also resulted in years of divestment and a decrease in investor confidence in the continent. The report also indicates that the debt sustainability of African sovereigns has significantly deteriorated and that over half of the 52 governments evaluated are either in debt distress or at high risk.

“The report attributes the significant rise in sovereign defaults to the formidable global macroeconomic environment, which is characterized by intersecting crises that consistently exert pressure on fiscal revenues.”

“The apprehension is the possibility of a ‘domino effect’ that could spread to other distressed sovereigns, particularly from 2024 onward, when substantial capital repayments are due on a multitude of international bonds.”

Nevertheless, the study found that the region’s loan defaults decreased by 13 percent to $129.9 billion in 2023, as numerous distressed sovereigns began to voluntarily restructure their debt in innovative, transparent, and credible ways.

The aggregated debt-to-GDP ratio of the continent has increased by 39.3 percentage points between 2008 and 2020 since the 2008 financial crisis, and has since declined to 68.6 percent of GDP in 2023. Consequently, Africa’s debt burden has increased considerably over the past 15 years.

The debt burden increased by 1.3 percentage points between 2022 and 2023.

In 2022, the “Paris Club” (22.6 percent), “foreign currency bonds” (16.8 percent), and “other official creditors” (29.4 percent) were the primary contributors, accounting for approximately 69 percent of the region’s loan defaults, according to the report.

Kenya defaulted on $305 million owed to “other private creditors,” while Tanzania defaulted on $1.3 billion owed to “other official creditors” and $4.5 billion owed to “other private creditors,” according to the report.

“Other official creditors” are primarily bilateral and multilateral creditors that are not separately identified, according to the report, while “other private creditors” are primarily suppliers.

“The default landscape regarding other private creditors is dominated by Tanzania and Zimbabwe,” states the report.

The substantial contribution of other official creditors to Africa’s aggregate loan default in 2022 was indicative of the substantial defaults of several countries, such as Sudan ($ 21.02 billion), Zimbabwe ($ 8.2 billion), Libya ($ 3.2 billion), Zambia ($ 2.04 billion), and Tanzania ($ 1.3 billion).

Ghana ($ 27.1 billion), Zambia ($ 3.5 billion), and Mozambique ($ 1.4 billion) were the primary contributors to the defaults on foreign currency bonds.

Similarly, the Paris Club loan default was precipitated by substantial defaults by Sudan ($22.1 billion), Zimbabwe ($3.7 billion), Somalia ($1.6 billion), Ghana ($1.4 billion), and Zambia ($1.3 billion).

In 2023, the report estimates that ‘other private creditors’ and ‘local currency (LC) debt’ accounted for approximately 18.7 percent of the region’s loan defaults.

Defaults to China, which accounted for 3.8 percent of Africa’s loan defaults in 2022, decreased from $ 8.8 billion in 2021 to $ 5.3 billion in 2022. This decrease was primarily due to China’s cancellation of 23 interest-free loans to 17 African countries.

Zambia and Ghana were the primary defaulters in 2023, with a significant presence in foreign currency bonds and defaults to China.

“Suspicions have persisted since 2016 that at least six African countries, including Kenya, Ethiopia, Djibouti, Mozambique, Zambia, and Ghana, have been in default on Chinese loans,” the report states.

In contrast, only Mozambique (2017), Zambia (2020), and Ghana (2023) have failed to make their Eurobond coupon payments during the same time frame. African countries with substantial exposure to Chinese loans, such as Angola and Kenya, are at the forefront of bilateral debt treatment.

Ghana was the largest defaulter of local currency debt in the previous year, with bondholders owing over $4 billion by May 2027. This debt was a component of the $13 billion dollar-denominated international bonds that Ghana held.

Sudan and Zimbabwe are the primary defaulters to Paris Club creditors, and they are also responsible for the defaults in the other official creditors category.

Egypt (14.5 percent), South Africa (14.3 percent), Nigeria (8.4 percent), Morocco (5.9 percent), and Mozambique (5.5 percent) are among the 10 African countries that bear approximately 67% of the continent’s total external debt stock.

Angola (5.3 percent), Kenya (3.7 percent), Tunisia (3.4 percent), Sudan (3.1 percent), and Ghana (3.0 percent) are the other countries.

As per the report, African countries have experienced a substantial increase in their external debt since 2008, with a total of $1.2 trillion and nearly 60% of the region’s total public debt stock in 2023.

The sustainability of debt and the capacity to service debt in real terms have been jeopardized by the increasing proportion of external debt.

In the past decade, there has been a significant change in the composition of Africa’s creditor base, which has shifted from traditional Paris Club sources to commercial and non-Paris Club creditors. This shift is a reflection of the changing dynamics of global finance and underscores the growing importance of diverse creditors in the continent’s debt landscape. Additionally, it demonstrates the flexibility of private lending, despite the relatively higher cost.

Consequently, the proportion of private debt in the continent’s GDP increased from 18.8 percent in 2008 to 41.6 percent in 2023.

In 2023, private debt constituted over half of Africa’s external debt, specifically 54.3 percent of the total debt. This figure surpassed the contributions of bilateral and multilateral creditors, which accounted for 18.7 percent and 27.1 percent, respectively.