Last Friday, Zambia became the first African economy in the pandemic era to default on a part of its debt after predictably failing to make an interest payment on a Eurobond. Recall that the country, in September, requested that interest rates for 3 Eurobonds be deferred and in October, missed a $40mn interest payment due on one of the bonds.
Notably, Zambia is not the only African nation with debt struggles. For instance, Kenya, Ethiopia, Angola, and Nigeria, are seeing rapidly increasing levels in dollar-denominated debt, aggravated by the battle with COVID-19.
Notwithstanding, the conversation around debt management and default risk is more nuanced.
Zambia is an extreme case in an environment plagued by systemic issues, including but not limited to subpar revenue collection, currency devaluation, commodity price decline, lack of transparency and irresponsible fiscal spending.
While it is important not to paint other African countries with the same brush as Zambia, these countries can take a few lessons on how to better handle their precarious debt situations.
Despite the G20’s recent agreement on a common approach for restructuring government debt, Africa’s increasing dependence on debt relief-resistant China might dampen the impact of this otherwise unsustainable approach which fails to address the issues contributing to the debt crisis.
Summarily, African countries must tackle the fundamental issues plaguing their economies.