Malawi's finance minister is "very optimistic" that the country's $1.2 billion external debt will be restructured and a new IMF loan program will be secured by the end of the year, pending assurance letters from China and India.
High interest rates and growing risk aversion among investors have led to debt crises in several developing economies, including Egypt, Ethiopia, Ghana, Kenya, Lebanon, Pakistan, Sri Lanka, Tunisia, Ukraine, and Zambia, which will be a primary focus at the upcoming IMF and World Bank meetings.
Many developing countries, particularly in Africa, are facing a severe debt crisis due to multiple crises and rising borrowing costs, with over 3.3 billion people living in countries that spend more on interest payments than on education or health, posing significant challenges for debt relief efforts led by traditional creditors and complicated by China's role as a major lender and the rise of private bondholders.
Developing countries, particularly in Africa, are facing a crippling debt crisis due to multiple crises, such as the COVID-19 pandemic, the war in Ukraine, and climate change, with billions of people living in countries that spend more on interest payments than on education or health, posing significant challenges for debt relief efforts.
The International Monetary Fund (IMF) has advised Nigeria to collect more taxes in order to fund the national budget and pay public debts, as the removal of fuel subsidies and foreign exchange unification alone will not lead to economic growth and stability; the IMF also recommended that Nigeria and other sub-Saharan African countries should look for funding domestically as foreign loans are becoming scarce and costly.
The IMF expects Ghana to reach a debt restructuring agreement with bilateral creditors in the next six to eight weeks, which would enable the country to receive a second disbursement from the $3 billion IMF loan and support its economic recovery efforts.
The IMF is urging sub-Saharan Africa governments to raise more in taxes and cut costly fuel subsidies, despite the challenges they face in implementing these measures due to high debt and public protests. African countries are grappling with tough spending choices and the risk of harming spending on health and education. The region's debt-to-GDP ratio is expected to rise further if fiscal policies do not change, and many governments are being forced to reduce spending as demand for public money grows. However, high interest rates and debt servicing obligations are making it difficult for African countries to refinance debt and invest in crucial sectors like education and healthcare. Developing countries' interest payments have outpaced spending on health, education, and investment over the past decade. The IMF recommends cutting fossil fuel subsidies that primarily benefit wealthier individuals, but this move has sparked protests in some countries. Overall, African governments are facing hard choices as they try to manage their debts and maintain essential services.
Nigeria's cabinet has approved a $1.5 billion borrowing proposal from the World Bank to support economic reforms aimed at boosting growth and addressing the cost of living crisis.
African countries face debt distress because of insufficient action taken to manage their debt and reluctance to cut social spending, according to former Nigerian Minister of Finance, Kemi Adeosun, who emphasized the need for international mechanisms for debt restructuring.
Nigeria's total public debt is projected to reach N118.37tn in the next three years, with the government planning to take N26.42tn in loans between 2024 and 2026, while debt servicing will amount to N29.92tn in three years, according to the Medium Term Expenditure Framework and Fiscal Strategy Paper 2024-2026; President Bola Tinubu recently expressed concern about the country's reliance on borrowing, stating that servicing external debts with 90% of revenue is unsustainable and that bold decisions are needed to break the cycle of overreliance on borrowing.