International Monetary Fund (IMF) managing director Kristalina Georgieva is concerned about the ability of some African countries to pay back their debts.
When a country fails to pay its creditors on time, it is said to go into “default”, which basically means the country goes bankrupt.
Consequences of a country defaulting on its debt may include its currency being devalued, austerity measures such as tax increases applied and investors becoming unwilling to invest in that economy.
Around 40 percent of African countries are in debt distress compared with 2013, when 20 percent of African countries were at high risk of debt distress, WorldFinance reported.
An estimated 20 percent of African governments’ external debt is owed to China, according to the Jubilee Debt Campaign, a charity that wants the debts of developing countries to be written off.
The Washington D.C.-based International Monetary Fund oversees the international monetary system and monitors the financial and economic policies of its member governments around the world. Of the 189 IMF members, 54 are in Africa.
The IMF’s newly appointed managing director Kristalina Georgieva cautioned African countries to monitor their debt and keep it under control by implementing sound macro-economic policies and improving their investment climates, according to Bloomberg.
Countries experiencing higher growth rates borrowed for investments that could generate growth and eliminated red tape for local and foreign investors, Georgieva said.
“Africa is a continent of opportunities and what we are looking for is for this opportunity to be harnessed to the maximum. It is also a continent with many troubles; so, we have to be mindful of these risks especially security risks,” Georgieva said.
Commenting on the debt levels of African countries, the IMF managing director said, “Are we worried about debt levels in Africa? Yes, because 40 percent of the countries have gone into debt distress levels.”
In October 2019, the IMF said that Eritrea, Gambia, Mozambique, Congo Republic, Sao Tome and Principe, South Sudan and Zimbabwe are in debt distress, Reuters reported.
Nine other sub-Saharan African countries including Ethiopia, Ghana, and Cameroon are considered to be at high risk of debt distress.
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Kenya is an example of an African country where debt levels are on the rise but the IMF is comfortable with it because Kenya has “good macroeconomic policy”, Georgieva said.
By comparison, Zambia’s debt levels could spiral out of control, Georgieva said.
“One has to remember that debt on its own is not bad. It is bad when it goes with the wrong things and when it goes with the speed that the economy cannot handle,” Georgieva added.