The Power Table: The state of Africa’s debt distress

The state of Africa's debt distress has been a topic of concern in recent times, with around half of the continent either in a state of distress or at risk of it. The rising interest rates globally and slowing growth have further exacerbated the situation, potentially hindering efforts to eradicate poverty on the continent. The discussion around debt forgiveness for Africa has gained momentum, particularly in the medium term, as a possible solution to the mounting debt challenges. Tatonga Rusike, the Sub-Saharan Africa Economist at Bank of America, and David Rees, the Senior Emerging Market Economist at Schroders, shed light on the current debt scenario in Africa during a CNBC Africa interview. Tatonga painted a nuanced picture of Africa's debt landscape, highlighting that while the continent as a whole is not in a debt crisis, certain countries are facing strains and are at high risk of debt distress. The World Bank has identified 14 countries at high risk and eight already in debt distress. Despite some success stories in countries like Angola and South Africa, many nations are grappling with financing challenges driven by global conditions, with central banks raising interest rates and restricting market access. This has led to a shift in debt dynamics, with an increasing reliance on commercial lending, particularly from China. David echoed Tatonga's sentiments, emphasizing the challenges faced by emerging markets due to the pandemic and aggressive tightening by global central banks. While pockets of distress exist in frontier markets, the overall liquidity measures indicate that a widespread crisis is unlikely unless there are unforeseen hikes in interest rates. The changing composition of debt in Africa, with a move towards more commercial lending, poses additional hurdles, especially with multiple creditors in the mix. The conversation revolved around whether debt forgiveness could be a viable solution, akin to the debt service suspension initiative during the COVID-19 crisis. While such initiatives provided temporary relief, the prospect of comprehensive debt forgiveness remains uncertain. Tatonga noted the importance of multilateral institutions stepping in to fill the financing gaps left by reduced Chinese lending and constrained market access. He highlighted the need for external support through IMF and World Bank interventions, coupled with domestic reforms to boost revenue generation. David emphasized the necessity of debt relief for countries to break free from the debt cycle, citing past instances where restructuring alone proved to be inadequate. Calling for major debt forgiveness, he underscored the challenges posed by the involvement of various creditors, including China, which often prefers extending maturities over reducing the debt stock. While some relief measures have been initiated by China, the preference for prolonging debt repayment terms may not be the most effective strategy for countries in distress. As discussions around debt forgiveness and restructuring gain momentum, the role of multilateral institutions, domestic reforms, and global economic conditions will be crucial in navigating Africa's debt distress. The upcoming IMF and World Bank meetings could provide further insights into potential solutions for countries facing high debt burdens. The road to debt sustainability may require a collaborative effort involving various stakeholders to ensure long-term financial stability and sustainable development in Africa.