Assessing debt sustainability in Africa

The focus in South Africa is on debt levels, as ratings agencies have pushed the country further into junk status. Finance Minister Tito Mboweni called the move a painful one, as the downgrades will raise borrowing costs. Joining CNBC Africa to review the case of debt in Africa is Cobus van Staden, a senior researcher for the Foreign Policy Program at the South African Institute of International Affairs. During the interview, Cobus shed light on the alarming trend of African countries defaulting on their debts and the increasing risk of a public debt crisis across the global south, exacerbated by the COVID-19 pandemic. One of the key points highlighted in the interview was the impact of the pandemic on African economies. Cobus noted that the pandemic has led to a significant increase in government spending, coupled with a decline in revenue from sources like remittances and tourism. This situation has created a perfect storm for many countries, pushing them towards defaulting on their debts. With nations like Zambia and Mozambique setting precedent by defaulting in recent years, the trend is concerning for the continent. Another crucial aspect of the debt crisis is the vulnerability of countries with ambitious development goals dependent on large-scale infrastructure projects. For instance, Kenya has been cited as a nation at risk due to its heavy investment in infrastructure, including a costly rail project that is struggling to generate returns. Such projects, while aimed at boosting economic growth, can become financial burdens if not managed effectively, potentially leading to debt distress in the future. Furthermore, the conversation delved into the distinctions among African countries based on their economic compositions. While commodity-producing nations like Zambia and Angola face significant challenges due to fluctuating global prices, countries like Rwanda, with fewer natural resources, may also find themselves in precarious financial positions. Cobus highlighted that even within these categories, each nation's debt sustainability is influenced by various factors, making it a complex issue to address. Regarding South Africa, Cobus expressed concerns about the country walking a risky line in terms of debt levels. Despite not facing the same level of crisis as some other African nations, South Africa must navigate its debt situation cautiously. While the country's internal debt may offer some respite compared to external debt holders, there are still challenges to address to prevent a full-blown debt crisis. In discussing potential solutions to the debt crisis, Cobus mentioned the importance of initiatives like the issuance of special drawing rights from the International Monetary Fund. While there have been calls for debt relief akin to a 'Hippic 2' initiative, progress has been slow, with resistance from some quarters to broader debt restructuring. The conversation also touched on the upcoming transition in the U.S. administration and the potential impact on debt-related policies, with a hope that a new approach may offer more support for debt-ridden nations. As the global south grapples with mounting debt challenges, the need for coordinated international efforts to address the crisis becomes increasingly urgent. Finding a balance between debt repayment obligations and sustainable economic recovery will be key to ensuring the long-term stability of African economies. With stakeholders across the board advocating for innovative solutions, the path forward will require collaboration and strategic decision-making to mitigate the risks associated with growing debt levels in the region.