The Republic of Congo announced on Friday that it had carried out the International Monetary Fund’s wishes of restructuring its debt, and so was eligible for an agreement with the IMF in a bid to turn around its debt-ridden economy. However, IMF in a statement said it would finance the agreement once it is sure that Congo has restored its debt sustainability.
Earlier this month, IMF bosses warned of the rising debt profile of many African countries. Currently, ten African countries are being weighed down with a heavy debt profile, but its negligible because the collective GDP of most of these countries is less than $30 billion. The Republic of Congo is in the top 10, with its debt-to-GDP ratio at around 110, a major reason why IMF has refused to sign any economic development deal with it.
IMF Africa Director, Abebe Selassie told Quartz two weeks ago that reducing the debt profile of many African countries is becoming increasingly important, since most of these debts are not sustainable. “What we are pointing to is the need to push back against this increase in debt,” he said “What’s really needed now is to try and capture the return on investments by those governments that invested in roads, electricity, water supply, etc.”
The finance body also seems to be taking the long road with Congo, basically promising the Central-African country that the body would fund its plans to “restore sustainable and inclusive economic growth and support a stable micro-economic environment compatible with the viability of the public debt,” if Congo complies with all the relevant IMF policies that apply to debt accumulation.
Congo is one of many African countries, especially Central African countries, that’s been hit by the low crude oil prices. While other Central African countries like Chad and Gabon have secured IMF loans, Congo and IMF have not yet arrived at a consensus.
Some of Congo’s debts are domiciled in commodity trading companies like Trafigura and Glencore, worth about $2 billion. However, most of its external debts are owed to China (like many other African countries), a situation former US Secretary of State Rex Tillerson said “endangers Africa’s natural resources and its long-term economic political stability.”
The growing debt for many African countries is a ticking time bomb according to analysts, and needs to be nipped in the bud immediately. Brookings Institute predicts that it is till one of Africa’s five biggest economies are deep in debt before the IMF and World Bank will begin to place importance on the rising debt profile on the continent. However, that could happen very soon as Angola and Kenya now have debt-to-GDP ratio of more than 60%.