60% of Africa’s low-income nations in debt distress

A recent analysis warns that a financial crisis is occurring or is imminent in about 60% of Africa’s low-income countries. According to a report by the United Nations Conference on Trade and Development, these places have record amounts of both public and private debt (UNCTAD).

The intergovernmental organisation outlined a plan for improved collaboration between developing nations that might contribute to reorienting the world economy. The COVID-19 pandemic has had a severely detrimental effect on the state of Africa’s government debt. 23 African nations were either in debt distress or at risk of it as of February 2022.

The report found that 16 low-income African nations were deemed to be highly vulnerable to debt distress by the International Monetary Fund (IMF) and World Bank towards the end of 2021. It further stated that Zimbabwe, the Republic of the Congo, Mozambique, Sao Tome and Principe, Somalia, and Sudan were already in debt crises.

According to the Trade and Development Report 2022, which was released on October 3, 2022, Ghana and Tunisia are in discussions with the IMF for emergency loans. The UN Food and Agriculture Organization also noted that 33 African nations require food aid from abroad, and in 18 of these economies, severe food insecurity is expected to get worse in the coming months.

Rebeca Grynspan UNCTAD’s Secretary General said: “Soaring fertiliser prices owing to the war in Ukraine threaten to reduce food production and deepen the food crisis, with smallholder farmers likely to be worst hit.” Due to low agricultural output, repeated seasons of drought, and ongoing conflicts, the situation is particularly bad in some areas of East and West Africa.

The research predicted that the global economy will rise by 2.2% in 2022 and 2.2% in 2023. According to the research, some of the biggest slowdowns will occur this year in low- and middle-income nations in Africa and Latin America. In emerging nations with high levels of debt, climate shocks increase the danger of economic instability.

Leading central banks are dramatically increasing interest rates, threatening to completely halt growth and making it more difficult for deeply leveraged businesses, people, and governments to survive. UNCTAD cautioned that a global recession could potentially cause more harm to African nations than either the 2008 financial crisis or the COVID-19 shock in 2020.

According to the UNCTAD research, moderate growth in Africa’s economic activity is predicted to occur in 2022 and 2023, at 2.7% and 2.4% respectively. This comes after a 5.1% recovery in 2021 and is due to a number of fresh issues, such as elevated food and fuel prices internationally, financial shocks brought on by the stronger-than-expected tightening of monetary policy in advanced countries, and significant concerns of food insecurity in many areas of the region.

The authors of the report noted that as a result, 58 million more Africans will be forced into extreme poverty by 2022.