As Africa’s external debt approaches $500 billion, the European Investment Bank (EIB) has warned that debt and costs related to servicing interest are threatening the financial position of sub-Saharan countries in dire need of investment.
The picture gets even gloomier considering that the balance of debt to GDP is dangerously tilting towards countries possibly defaulting on their loan commitments.
A serious concern for European lenders is that roughly 20% of the continent’s external debt is linked to Eurobonds.
Ten years ago the debt-GDP ratio was 38%.
In 2018 that ratio spiked to 58% and is steadily increasing in several sub-Saharan countries - with South African being one of them.
This year SA’s debt-GDP ratio is expected to spike to 62%.
Between 2021 and 2023 that ratio is predicted to increase to 65.6%, 69.1% and 71.6%.
Currently 15.2% of SA’s tax revenue goes to servicing interest.
Also in the rogue’s gallery of fiscally failing countries are Mozambique and Zimbabwe, the International Monetary Fund reports, with Zambia veering close to joining them in the category of countries in debt distress.
Comoros, Lesotho, Madagascar and Malawi are also failing to prudently service debt and shrink budget deficits.
The EIB said Angola and Seychelles, in comparison, were operating on surplus budgets and that generally speaking possible defaulters, such as South Africa, appeared to be working hard to follow suit by slashing public spending, the main reason for ballooning deficits.
