As the COVID-19 pandemic wreaks havoc in Africa, not only have precious lives been lost, but also some of the world’s poorest countries are slipping further into the grip of a debt crisis. The IMF recently warned that no less than 20 countries in sub-Saharan Africa are already in debt distress or at high risk of debt distress. To find a way out, it is important to first answer a key question: who is responsible for the debt crisis in Africa?
The biggest lenders
Africa’s external debt accumulation dates back to the 1970s, when massive excess capital in Western banks following soaring oil prices led to reckless lending by OECD members to developing countries. , including vigorous loan extensions without extensive credit analysis. From 1970 to 1987, the ratio of total external debt to GDP in African countries soared from around 16% to 70%.
When the global recession of the 1980s hit, rising interest rates in developed countries led to soaring interest payments for African debtors against market-based loans, further compounding their debt burden. In an attempt to address the problem, the World Bank’s Structural Adjustment Program (SAP) resorted to austerity measures that resulted in large current account deficits, astronomical inflation and depressed currencies in Africa, forcing the World Bank and IMF to provide debt relief to Africa. 1996, traumatic beginning of the commitment of the institutions of Breton Woods.
The 21st century has witnessed an expansion of World Bank and IMF lending to sub-Saharan Africa, and unsettled multilateral debts have increased by 88%, from $58.7 billion to $110.45 billion. dollars between 2010 and 2018. A study by Jubilee Debt Campaign in 2018 suggested that multilateral institutions, mainly dominated by the United States, accounted for 35% of African governments’ external debt, while the private sector, China and the Paris Club countries accounted for 32%, 20% and 10% each.
A vicious circle
What explains the continued borrowing by African governments that leads to rising debt, rising costs and possible default?
One important explanation is that the SAP and others have derailed African countries’ political and economic reforms and undermined their sovereignty and social systems while benefiting external forces. Exploiting multilateral institutions, Western creditors have minimized the ability of African governments to regulate the national economy and ensured, for most Western multinational companies, easy access to local labor and resources.
Zimbabwe, for example, once a success story in the 1980s and early 1990s, was plunged into an economic crisis with much slower GDP growth after the adoption of the SAP. Disproportionate fiscal austerity under the program severely hampered the country’s human capital development and investment in public welfare, leading to mass unemployment and social unrest in 1998. In 2003, at risk of being expelled from the IMF for unpaid dues since 2001, Zimbabwe had no choice but to embark once again on the doomed cycle of implementing IMF-dictated reforms to benefit from new aids.
Ideally, external debt should contribute to production, spur growth, create jobs, and provide tax revenue and foreign exchange, so as to enable debt repayment on the basis of sustainable development. Unfortunately, the joint World Bank-IMF debt sustainability framework for low-income countries failed to open up promising prospects for recipients. Of all the countries that have been bailed out by the IMF, 11 have relied on its assistance for at least 30 years; 32 had been borrowers for 20 to 29 years; and 41 have used IMF credit for 10 to 19 years.
Western politicians often brag about the short-term results of foreign aid projects as professional achievements, but with little regard for the long-term ramifications. For example, the World Bank reviews only 5% of its loans after 3 to 10 years and has not yet made public its surveys of what borrowing governments think of its performance.
The ultimate beneficiaries
Surveys have shown that large sums of money from Western aid agencies most often end up in the hands of domestic interest groups. US-based NGOs, such as World Vision and Save the Children, receive 40% of their funding from US aid funds. Their frequent, unsupervised trips to recipient countries typically cost between 30% and 45% of their total aid project budget. Of the US Agency for International Development’s $80 million funding for the UN’s Malaria Project in 2005, most was spent on the agency itself (such as the employment of advisers), with only 1% and 5% for the purchase of medicines and mosquitoes. fillets.
Ultimately, those who control the dollar have a lot to gain from Africa’s debt buildup. With financial hegemony, the United States can easily transfer domestic economic crises to the rest of the world, in many cases simply by printing more greenbacks. When the US Federal Reserve returns to manual monetary tightening and interest rate hikes, Africa and other parts of the developing world will see increasingly expensive dollar-denominated debt and a debt crisis. hardly avoidable.
Africa’s entrenched debt vulnerabilities are essentially the legacy of an unjust and predatory global economic and financial order dominated by the United States and other wealthy Western countries. As poor countries grapple with the looming debt crisis, we must not lose sight of who caused the problem in the first place.
The author is a commentator on international affairs, writing regularly for Global Times, China Daily, etc.
The opinions expressed here are those of the author and do not necessarily represent the views of China Daily and the China Daily website.