Business Edge | Africa’s Rising Debt to GDP Ratio

According to a World Bank report, the debt of low to middle-income African countries rose to $702 billion in 2020, the highest it got in a decade. In 2010, the debt in Sub-Saharan African countries was around $305 billion and has since doubled since that time. While some of this could be blamed on the economic fallouts of COVID19, many of these countries have been in a precarious state long before the pandemic. The external debt stock of the region had increased to 8.4% between 2018 and 2019. At this point, the rate at which the gross domestic product is not growing as fast as inflation and debt is rising, and it’s setting off alarm bells across institutions and economies. The debt to GDP ratio compares what a country owes with what it produces and is most time, an accurate indication of its ability to pay back loans – or not. For the final episode of Business Edge for the week, Tolulope Adeleru-Balogun takes a look at Africa’s rising debt to GDP ratio with Dr Thanti Mthanti of the University of Cape Town Graduate School of Business.

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Falling commodities prices before the coronavirus pandemic hit had already taken some toll on several Sub-Saharan African countries and this affected the export revenue that was accruing to these countries. “For some countries to balance their budgets and to maintain investment consumption, they resorted to borrowing,” Dr Mthanti says, explaining the precarious state of things before COVID19 worsened it by early 2020. “We started to see debt levels rise post-2013.”

That said, two metrics to consider are the gross national product (GDP) and gross national income (GNI). Both are on the rise as well in Africa’s leading economies. Dr Mthanti thinks perhaps these two metrics when determined in the context of debt and borrowing, may not be as important factors as they appear to be simply because some countries are simply evolving. “South Africa, Mauritius, Kenya… these countries borrow in their currencies and have built their own bond markets where they borrow from.”

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