Debt Burden and Opaque Resource-Backed Loans Hinder Africa’s Potential

Africa's immense economic potential is being undermined by non-transparent resource-backed loans that complicate debt resolution and compromise countries' future growth.

Debt Burden and Opaque Resource-Backed Loans Hinder Africa’s Potential

By Abdi Ali
Published April 24, 2024

Stressing the need to address the structural issues in Africa's debt landscape, Adesina points out the shift from concessional financing to more expensive and short-term commercial debt, with Eurobond debt now accounting for 44% of Africa's total debt, up from 14-17% previously. Africa’s immense economic potential is being undermined by non-transparent resource-backed loans that complicate debt resolution and compromise countries’ future growth.

“I think it’s time for us to have debt transparency accountability and make sure that this whole thing of these opaque natural resource-backed loans actually ends, because it complicates the debt issue and the debt resolution issue,” Akinwumi Adesina, President of African Development Bank, says, highlighting the challenges posed by Africa’s ballooning external debt, which reached US$824 billion in 2021, with countries dedicating 65% of their GDP to servicing these obligations.

Adesina says the continent shall pay U$74 billion in debt service payments in 2024 alone, a sharp increase from US$17 billion in 2010.

Africa's immense economic potential is being undermined by non-transparent resource-backed loans that complicate debt resolution and compromise countries' future growth. Stressing the need to address the structural issues in Africa’s debt landscape, Adesina points out the shift from concessional financing to more expensive and short-term commercial debt, with Eurobond debt now accounting for 44% of Africa’s total debt, up from 14-17% previously.

He also criticizes the “Africa premium” that countries pay when accessing capital markets, despite data showing that Africa’s default rates are lower than those of other regions. He calls for an end to this risk perception, which he says leads to higher borrowing costs for African countries.

Adesina stresses the importance of putting in place an orderly and predictable way of dealing with Africa’s debt, urging for faster implementation of the G20 Common Framework.

He calls for increased concessional financing, particularly for low-income countries.

“What’s particularly interesting in Africa is that the level of concessional financing itself has actually gone down, has shrunk significantly,” he argues.