Debt Distress and Climate-Resilient Development in Sub-Saharan Africa
This white paper first appeared on the Debt Relief for Green and Inclusive Recovery website on August 31, 2023.
Anzetse Were co-authors this white paper with Kevin P Gallagher, Luma Ramos and Marina Zucker-Marques to provide insight and data on the debt-climate nexus in Africa--and how the continent can come out of the debt and climate change crisis stronger and more resilient.
External debt in SSA has more than tripled since 2008, with the region experiencing the largest deterioration in debt sustainability indicators across the Global South.
By 2021, total SSA debt stock amounted to $539.1 billion, of which a combined 40 percent is owed to bondholders and other private creditors, 28 percent to multilateral development banks (MDBs) and 11 percent to China.
Debt service will take a significant share of government spending in SSA, with the average SSA country spending 12 percent of government revenue on external debt service. Angola, Zambia, Benin and Ghana will all spend 25 percent or more of government revenue to service external debts.
SSA countries will face debt servicing costs in US dollars that are roughly the same (93 percent) as their climate finance needs on an annual basis.
Only ten countries in the region have the borrowing space to finance those needs.
SSA’s debt distress is informed by external shocks of which the region has had no control—such as the COVID-19 pandemic, Russia’s war in Ukraine, climate shocks, the globalization of inflation from advanced economies and advanced economy interest rate hikes. Moreover, the region is responsible for roughly 0.5 percent of cumulative carbon dioxide emissions but bears the highest level of the costs of climate change itself.
African countries need significantly more voice and representation in the international economic architecture in general, and debt restructuring in particular. Further inaction will not only inflict material damage globally in the form of climate change and lost market opportunities, but also further erode the legitimacy of the architecture itself.