Analysts say they are not surprised by global projections of slower growth and its fallout for poor countries from lenders at the annual 2023 Spring Meetings of the International Monetary Fund (IMF) and the World Bank in Washington this week.
IMF Managing Director Kristalina Georgieva opened the week's meetings saying despite the remarkable resiliency of consumer spending in the United States and Europe, the global economic outlook is not great for poor nations.
“We have been wrestling with one crisis after another, one shock after another and that has pushed on the back burden of the longer-term agenda of structural reforms that are paramount to uplift productivity and with productivity remaining low, prospects for growth are low,” Georgieva said Monday.
Harry Verhoeven, a senior research scholar at Columbia University told VOA that slow growth will make it harder for the world’s poorest countries to recover from the damage caused by COVID-19, climate change, and high food and energy prices from the Ukraine war.
“The reality is the debt-to-GDP-ratio had already reached historically high levels of about 60% in late 2019,” Verhoeven said. He said emergencies that have happened since then “have only worsened that predicament.”
Georgieva said low-income countries are struggling to repay their debt and has urged lenders to restructure or even forgive debt owed by developing countries like Zambia and Ghana, which have formally applied for debt reduction, a call reiterated by U.S. Treasury Secretary Janet Yellen.
Many other African countries are “gravely worried about their debt,” Verhoeven said, adding that “a big blame game” has continued that mainly involves the United States and its European allies accusing China of “lavishly distributing a number of funds and a number of credits, sometimes irresponsibly so,” saddling African countries with massive debt.
In Africa, Ghana, Egypt, Tunisia, and Malawi are facing a debt crisis; Zambia has already defaulted on its international loans. Zambia was the first African country to default during the COVID-19 pandemic and is in continued talks for relief of $18.6 billion of debt.
He (Verhoeven) said China’s responded by saying most of the debt involves private creditors such as commercial banks, not China.
African governments’ debt to private creditors, Western banks and oil traders is three times more than what they owe to China, and they are charged double the interest, according to research released in July, 2022 by Debt Justice. Only 12% of African governments’ external debt is owed to Chinese lenders compared to 35% owed to Western private lenders, according to the calculations by Debt Justice based on World Bank data.
Many of the lenders are based in London, New York, or Frankfurt said Verhoeven, making international mediation around debt restructuring or relief “tricky.”
In a report released ahead of this week’s World Bank/IMF meetings, the World Bank said economic growth in Sub-Saharan African will slow from 3.6% to 3.1% in 2023. Andrew Dabalen, the World Bank’s chief economist for Africa told VOA Wednesday African governments must sharpen their macroeconomic stability, domestic revenue collection and debt reduction to reduce extreme poverty and boost poverty in the long term. “African countries really need to put all their effort into stabilizing their economies,’ Dabalen told VOA, adding there is a real possibility they face an economic crisis “that is going to be related to debt.”(From James Butty interview.)
A number of African countries have already defaulted on international loans.
In Egypt, the country’s tourism-dependent economy was hammered by the pandemic and skyrocketing food and energy prices, leaving it short on cash to pay rising debts. Ghana is facing the worst economic crisis in a generation, spending over 40% of government revenues on debt payments in 2022. Zambia was the first African country to default during the COVID-19 period in 2020 and is seen as a litmus test for the G20’s Common Framework initiative formed during the pandemic to streamline debt restructurings.
A collaborative report by the Debt Relief for a Green and Inclusive Recovery Project, concluded over $500 billion in debt needs to be forgiven and without “haircuts,” or heavy debt restructuring, low-income countries will default.
Project co-chair Kevin Gallagher, director of Boston University’s Global Development Center told VOA “The price tags of these investments is small relative to the cost of inaction,” adding “at this moment, many developing countries just don’t even have a fighting chance to be able to mobilize that kind of finance.”
Some information in this report came from Reuters. VOA Day Daybreak Africa host James Butty contributed to this report. (end)