Africa’s rising “unsustainable” debt is driving a wedge between the World Bank and other lenders
February 16, 2020
Yinka Adegoke
By Yinka Adegoke
Africa editor. QUARTZ AFRICA



African debt is on the rise, and that fact is causing tensions to spark in unexpected places.

Total external debt for sub-Saharan Africa jumped nearly 150% to $583 billion in 2018 from $236 billion 10 years earlier, according to World Bank data. Many now worry the debt load is becoming unsustainable as the average public debt increased from 2010-2018 by 40% to 59% of GDP.

It’s a problem across the low-income developing world but is particularly acute in the subregion, where the fast-growing debt accumulation has outpaced other developing areas.

The trend has been driven by a number of factors, including cheap money in more advanced economies so investors have been keen to seek yield in African countries promising up to 8% or 9% on eurobonds, said IMF managing director Kristalina Georgieva, in a panel discussion at the World Bank in Washington, DC this week.

The problem, she noted, is 8% to 9% isn’t cheap for many countries paying out the yield.


The IMF and World Bank are especially worried about the lack of transparency, weak debt management, and a lack of capacity in an increasing number of low-income countries.

“We are faced with a duality. Sophistication of lending instruments is going up. Multiplicity of sources is going up—and capacity to handle is falling behind,” said Georgieva.

Both institutions are also worried about the impact of China which, while still not the largest lender, has become a hugely influential source of capital in African countries that have few options due to their weak economic balance sheet.

This is particularly true because China offers a convenient package of funding and execution through its state-owned enterprises for much-needed infrastructure projects across the continent. The problem, said World Bank president David Malpass, is the lack of transparency.

“One of the practical problems we’re dealing with right now is some of the new lenders, the non-Paris Club lenders—and so I guess when we say that, people should sometimes read China into that,” said Malpass. “

They’ve escalated their lending, which is good in a way. We want more lending into developing countries.
But…oftentimes their contracts have a nondisclosure clause that prohibits the World Bank or private sector from seeing what the terms of the contract are.”

WB vs AfDB
But Malpass grabbed most headlines for his attacks on the Asia Development Bank, European Bank for Reconstruction and Development, and the African Development Bank (AfDB), blaming them for “a tendency to lend too quickly and add to the debt problem of the countries.” He added: “In the case of Africa, the African Development Bank is pushing large amounts of money into Nigeria, South Africa, and others without the strongest program to sustain it and push it forward.”

https://qz.com/africa/1803280/world-bank-imf-worry-on-africa-rising-debt-to-china-afdb/