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Two decades ago, much of sub-Saharan Africa was excluded from the global financial system. Reckless lenders had lent too much to irresponsible (and often unelected) governments. Crooked officials had stolen billions, stashed their loot abroad and left the bill to their fellow Africans.

Places like Ghana (with public debt over 120% of GDP) and Mozambique (over 200%) could not cover interest payments on existing loans, let alone service new ones. Unable to borrow, these countries could not invest in roads, ports, schools and clinics. Pop stars and preachers campaigned for relief from the “odious debt” dictators imposed on their people. The IMF responded with a “Heavily Indebted Poor Countries” (HIPC) program, erasing much of the debts of 36 countries, 30 of them in Africa.

His success was remarkable. With the slate wiped clean, most African countries have been able to tap international markets for finance (see article). Helped by new lending and much better monetary policies, most sub-Saharan African economies have recovered. Since 1990, three-quarters of them have posted at least ten years of uninterrupted growth (one-third have achieved twenty years). Millions of children now attend schools financed by these loans. Millions more have had their lives saved through vaccinations or clinics paid for with borrowed money.

Too much of a good thing

Bad old habits have returned, however. As investors desperately seek yield, they have piled into African bonds. In 2013-16, the public debt-to-GDP ratio in Sub-Saharan Africa, as defined by the IMF, increased by an average of five percentage points per year for non-oil producing countries and eight for oil producing ones. produce them. It is now above 50% in half of the countries in the region. This is modest by rich world standards, but commercial interest rates are much higher in Africa. Since 2013, the number of countries that the IMF deems to be in “over-indebtedness” or at high risk has doubled to 14.

It hurts. Zambia now spends more on debt servicing than on education. Governments’ insatiable appetite for debt crowds out other borrowers. Local banks often find it easier to buy government bonds than to do the hard work of assessing the creditworthiness of local businesses, which are asked to pay ruinous interest rates of 20-30%. The fate of banks is thus linked to the health of state finances, weakening the entire financial system. Africa is not yet in a debt crisis. But if these increases last only a few more years, many African countries could find themselves stuck in the debt trap they so recently escaped.

How then can such a crisis be avoided? The first step is for African governments to start tightening their belts. They should improve tax collection and borrow only to invest, not to swell the salaries of civil servants (as Ghana has done) or to buy warships (as Mozambique has done). Across sub-Saharan Africa, governments need to achieve fiscal consolidation of around 3 to 5 percentage points of GDP over the next five years, the IMF estimates.

Yet borrowers are only half the problem. Banks have been content to arrange bond issues or loans for corruption-ridden governments despite warning signs that the money could be stolen. Many people suspect this is because they blithely expect the IMF to step in with bailouts and austerity programs that will mean their loans will be protected. And countries like China have taken out loans for infrastructure projects to project soft energy and occupy their own construction companies.

Curbing this moral hazard will not be easy. Rising global interest rates will limit borrowing, but increase the risk of default. Some creditors are expected to take losses – for example, those who threw money at obviously dodgy state-owned companies in Mozambique. The occasional default would make creditors more cautious about distributing their money in the future. But if too many countries failed to repay their loans, risk premia would skyrocket across Africa and deprive the region of credit. This calls on organizations such as the IMF to speak out. They must resist the temptation to be tactful and instead issue unambiguous warnings when countries go astray. It takes two to dig a debt trap, but only one to warn that it’s time to stop shoveling.