The Economist Intelligence Unit (EIU) has raised concerns about the debt-servicing challenges faced by several African countries in 2023.
According to the EIU’s Updated 2023 Africa Outlook Report, countries including Ghana, Tunisia, Egypt, Congo-Brazzaville, Zambia, Zimbabwe, and Mozambique are expected to grapple with debt burdens that will consume a significant portion of their revenue.
The EIU’s report highlights that African governments have significantly increased their borrowing, both domestically and internationally. This surge in borrowing has caused public sector debt ratios, relative to GDP, to rise towards levels last observed in the early 2000s, just before the extensive debt restructuring of 2005, which was implemented under the heavily indebted poor countries (HIPC) initiative.
The report states, “Ghana, Tunisia, Egypt, Congo-Brazzaville, Zambia, Zimbabwe, and Mozambique have enormous amounts of debt relative to GDP, and their governments will face substantial challenges in servicing this debt in 2023.” The EIU also notes that the public-sector debt-to-GDP ratio will remain above 60% for Africa in 2022 and 2023, with some countries exceeding this level significantly.
One key concern raised by the EIU is the need to service and roll over large amounts of debt, particularly at a time when domestic and international borrowing costs are on the rise. This situation is expected to weigh heavily on the affected countries in 2023, and the challenges may intensify in 2024 when additional capital repayments come due.
The EIU further highlights that major economies such as Algeria, Angola, Ethiopia, Gabon, Kenya, Nigeria, and South Africa appear to have manageable levels of public debt. However, these countries are projected to face high and escalating debt-servicing costs, especially in the case of Nigeria, where the debt-to-GDP ratio is relatively low but debt servicing is considerably expensive.
As a result, the EIU anticipates mounting pressure on these countries to implement economic reforms, which may involve changes to subsidy regimes and tax structures, as well as reductions in public-sector spending. However, the report suggests that significant reforms are likely to be delayed until after upcoming elections, as political considerations come into play.
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