In response to the economic downturn precipitated by the Covid-19 pandemic, countries sharply raised their government expenditures to fend off humanitarian and health emergencies in the face of a concurrent drop in government revenues and shocks to global demand and supply.
Consequently, levels of sovereign debt increased significantly around the world. Among developing economies, public debt (both domestic and external) increased by more than 40% to $26.9trn over 2019-20. The number of countries with public debt exceeding 60% of GDP increased from 45 to 71 over the same period, the fastest-ever single-year jump.
Since then, the risk of debt crisis in the Global South and especially in Africa, where interest payments on external debt have become one of the largest expenditure items on national budgets has dominated discussions at the biannual meetings of the World Bank and International Monetary Fund (IMF).
However, for Africa, which has been contending with financial repression for decades, the disproportionately elevated threat of debt crisis is largely the consequence of entrenched inequalities in the international financial architecture. These disparities have, for years, subjected African sovereign and corporate entities to growth-crushing and default-driven borrowing rates.
The effects of this imbalance have been far-reaching: exacerbating the climate crisis in Africa; undercutting investment in growth-enhancing infrastructures; inhibiting the diversification of sources of growth; undermining the expansion of employment opportunities, and aggravating external imbalances, which have been major drivers of external liabilities.
Despite several decades of sustained engagement with the Bretton Woods institutions, 33 African countries are classified among the least developed in the world, according to the UN. In sub-Saharan nations, only three million new jobs are being created annually when 18m per year are needed to absorb new entries into the regions labour market.
These inequalities are giving rise to global challenges that, in the absence of major reform to the international financial system that promotes equal access to affordable financing, will only worsen over time, including escalating climate crisis, and rising levels of poverty-induced cross-border migration.
The most recent World Bank-IMF Annual Meeting was held in Marrakesh, Morocco, in October 2023 the first time in Africa over the last 50 years. There, IMF Managing Director Kristalina Georgieva recapitulated the difficulties confronting countries in the Global South in their engagement with the international financial system:
I do hear the legitimate calls of African countries, not only African countries but countries also all over the world that are burdened by debt, especially painful to see when some of this debt is because of climate-related shocks, because of a problem these countries have done nothing to create, she said.
In the latest edition of the IMF World Economic Outlook , published in January 2024, the Fund called for more efficient multilateral coordination and debt resolution to avoid debt distress in the face of limited progress toward a comprehensive debt restructuring framework that secures the commitment of all creditors, both public and private.
Evidently, the challenges of achieving debt sustainability in the Global South will likely dominate talks at the upcoming World Bank-IMF Spring Meetings in April. And Africa will likely be singled out as the main culprit, even though countries across the region adopted, at the height of the pandemic downturn, the least expansive fiscal or monetary stimulus measures.
Africa short-changedMore than any other region of the world, Africa has been short-changed by the international financial architecture that was born out of the 1944 Bretton Woods Conference.
According to the most recent debt statistics, around 60% of countries identified by the IMF as being in debt distress or most at risk thereof are African. To make matters worse, the four countries that have defaulted on their external debt are all in Africa (Chad, Ethiopia, Ghana, and Zambia).
However, today the disproportionately elevated risk of sovereign default faced by African countries is not a reflection of their fiscal proclivity, nor of macroeconomic policy malpractice, nor the result of government largesse in response to the pandemic or climate crisis.
According to the IMF Fiscal Monitor, African countries collectively spent $60bn in their Covid-19 responses (via liquidity support and forgone revenues), a paltry total compared to the record-breaking levels of resources deployed by the European Union and the US.
From 2020-21, the EU extended emergency relief to member countries amounting to $4.27trn, while the US extended $5.8trn over the same period. In the latter ca
