Africa’s debt fatigue could lead to global catastrophe

A looming debt crisis on the African continent is set to trigger a broader global economic catastrophe. An alarmingly swift accumulation of debt since the early 2010s has skyrocketed following recent global commodity price shocks, contributing to the untenable levels of debt we see today.
The continent, which is home to the fastest-growing population in the world, stands on the brink of an insolvency contagion that threatens to derail its fragile economies and reverberate through interconnected global markets.
To illustrate the scale of the problem, between 2012 and 2017, real gross domestic product growth in Africa plummeted, while fiscal deficits ballooned to an average of more than 5 percent of gross domestic product. Notably, more than two-thirds of sub-Saharan African nations saw public debt as a percentage of GDP soar by more than 10 percentage points.
The consequences of such fiscal strain are profound: erosion of investor confidence, destabilization of economies still treading water after the COVID-19 pandemic and impediments to long-term development initiatives.
The pandemic, in particular, exacerbated Africa’s debt challenges, pushing the average debt-to-GDP ratio above 70 percent. As nations rightly focused on the immediate health emergency and stimulus expenditures, financing needs rose sharply, surpassing GDP thresholds in many cases. Not only did this lead to additional debt spikes, it dramatically strained public budgets, with more than 20 African countries spending more to service accumulating debts and some diverting an eye-watering 30 percent of public revenues to pay external debtors.
Another factor contributing significantly to the current crisis is the changing structure of Africa’s debt. During the early 2000s, debt was primarily owed to Paris Club members (an informal grouping of creditor nations that aims to find workable solutions to payment problems faced by debtor nations) and multilateral institutions. By 2020, this had changed, with private creditors holding more than 40 percent of African debt.
Additionally, China emerged as a dominant lender, advancing approximately $160 billion to African countries between 2000 and 2020. This changing creditor profile leaves African nations more vulnerable to economic shocks, given that more recent debts came with shorter maturity periods, thereby increasing refinancing risks.
As a result, many countries are facing debt repayment bottlenecks between 2024 and 2028, most likely under much tighter financial conditions and aggravated by external and continental crises.
With debt reaching such unsustainable levels, it came as no surprise when, as early as 2016, the International Monetary Fund and the World Bank began warning of potential defaults. These institutions, and other key stakeholders, highlighted the potential harmful effects of runaway debt on social programs and social safety nets, including the impoverishment of desperate populations and destabilization of already fragile governments. Of course, the warnings fell on deaf ears, leaving African countries to face an uncertain future.
However, the effects of Africa’s debt fatigue extend far beyond its borders, with significant implications for global economic stability. Diminished investor confidence in African economies could lead to reduced foreign direct investment and halt key development projects, as well as critical climate change interventions. Such a situation would result in greater poverty and increased youth unemployment, which are risk factors for prolonged social unrest.

To ameliorate Africa’s debt woes, a shift toward more transparent lending practices and sustainable financing models is imperative. 

Hafed Al-Ghwell

Shockingly, China’s substantial lending and its recent pivot toward a strategy that aims to ensure higher returns with fewer complications indicate a move away from risk-laden African debt. The shift marks a significant departure from Beijing’s previous strategy, which involved pouring about $120 billion of government-backed loans into Africa through its Belt and Road Initiative over the past decade. This initiative sought to build vital infrastructure, such as hydropower plants, roads and rail lines, across the continent — critical pillars that are often ignored in Africa’s growth “story” as ruling elites pursue quick fixes and funnel limited funds into their patronage networks.
These investments initially facilitated considerable development and secured China’s influence over Africa’s abundant natural resources. However, the honeymoon period of easy money seems to be over, as evidenced by stalled projects such as Kenya’s $3.8 billion railway. This incomplete venture is symbolic of a broader issue: Many Chinese-financed projects have failed to yield the expected economic benefits, leading to allegations of debt traps and corruption.
China’s pivot is primarily driven by its own economic slowdown and growing scrutiny of its lending practices. Loans to Africa almost ceased during the pandemic, declining from a high of $28 billion in 2016 to $4.6 billion last year.
Instead of channeling funds through state-run policy banks, Beijing now increasingly favors profit-generating projects operated through public-private partnerships. Ventures of this kind, such as a $20 billion iron ore mine in Guinea and a $5 billion oil pipeline in Uganda and Tanzania, reflect a new approach that aims to generate better returns while deflecting accountability. Consequently, African nations, long accustomed to China’s largesse, now face the dual challenges of securing funding under less favorable terms while managing burgeoning debt distress.
To say that the magnitude of Africa’s debt crisis is alarming is an understatement. Zambia, for example, defaulted on its loans in 2020, prompting scrutiny of China’s financing tactics. Angola, the largest African recipient of Chinese loans, owes approximately $17 billion, which is more than a third of its total external debt. The debt-to-GDP ratios of countries heavily involved in Belt and Road Initiative projects have surged, exacerbating their financial instability.
While some projects, such as the $2 billion Kafue Gorge Lower Hydropower Station in Zambia, have shown signs of success, they are exceptions rather than the rule. Convoluted debt structures and opaque lending conditions often leave African economies teetering on the brink of fiscal collapse, resulting in an unsustainable status quo.
To ameliorate Africa’s debt woes, a shift toward more transparent lending practices and sustainable financing models is imperative. This is easier said than done, however. Public-private partnerships, while potentially profitable, are fraught with their own challenges, including regulatory hurdles and governance issues. African nations must balance the urgent need for infrastructure development with the fiscal discipline required to avoid debt distress.
As China recalibrates its approach, a fundamental question remains: Will the continent’s beleaguered economies be more inclined to risk defaulting, rather than undergo politically costly austerity measures or uneasy reforms that might spawn more crises than they can hope to solve?
The answer to this will ultimately chart the course of Africa’s economic future and its place in the global financial ecosystem.
In the meantime, a curious chessboard appears to be rearranging itself. The US and Gulf nations have intensified their focus on Africa. They have offered economic packages, military assistance and trade agreements, but their efforts remain piecemeal. They are simply insufficient to compensate for the shift in Chinese aid toward profit-driven loans that have forced African countries to confront shrinking policy options and either align with new partners, adopt stringent reforms or continue down a precarious path of mounting debt.
With about $2 trillion in public debt on the continent, an increase of nearly 200 percent since 2010, the urgent need for decisive and collective action on the issue simply cannot be overstated.

• Hafed Al-Ghwell is a senior fellow and executive director of the North Africa Initiative at the Foreign Policy Institute of the Johns Hopkins University School of Advanced International Studies in Washington, DC. X: @HafedAlGhwell