Ghana leads way in terms of debt unsustainability in Africa – World Bank Africa Pulse report

Ghana is leading the way in terms of debts unsustainability as tightening global financial conditions, due to policy rate increases in advanced economies, coupled with the war in Ukraine are pushing up sovereign spreads in several countries.

According to the April 2022 World Bank African Pulse Report, the risk could further increase if global inflationary pressures continue growing amid the multiple shocks facing the world economy, and if the Federal Reserve Bank hikes policy rates more aggressively than anticipated.

“Sovereign spreads could then rise even higher, especially in countries [Ghana, Zambia] that are in or at risk of debt distress, as well as countries with high exposure to exchange rate or interest rate risks”. The report on the theme “An analysis of issues shaping Africa’s Economic Future stated.

Additionally, Ghana, Ethiopia, Malawi, and Mozambique fell short of replicating the success of most non-resource-rich countries in part because of elevated debt levels, and in some cases insecurity. In Ghana and Malawi, the disappointing performance underscores the poor management of public finances and, the need for significant growth enhancing reforms, while growth was held back in Ethiopia and Mozambique by the ongoing civil war in the Tigray Region and insurgency in Cabo Delgado, respectively

In 2021, the World Bank said countries in the region are at moderate or high risk of debt distress, and the share of countries in high risk of debt distress grew from 52.6% in 2020 to 60.5% in 2021. To address the rising risks of debt sustainability, some countries in the region implemented austerity measures; however, these actions have been insufficient to reduce debt levels.

“The existing debt relief and resolution mechanisms have been inadequate to bring down debt levels or reduce the vulnerabilities of countries that are eligible for such initiatives. Improvements are much needed to avoid a large wave of debt crisis among developing countries, particularly Sub-Saharan African countries”. It added.

Some changes have been proposed by international financial institutions, such as the establishment of clear guidelines and a timeline for the treatment process, the suspension of debt service payments to official creditors for all applicants during negotiations, an assessment of the parameters and processes of comparable treatment as well as clear rules for implementation, and expansion of the eligibility criteria of the Common Framework to include lower-middle income countries seeking debt treatment.