Photograph — The Economist

In the last few months since reporting the first COVID-19 positive case, African countries have borrowed at least $10 billion in new loans to deal with the adverse impact of the pandemic on livelihoods and economies. These add to mounting debts at a time when tax revenue is shrinking, export earnings are in free fall, and diaspora remittances are drying up.

Meant to finance the region’s response to and protect its economies against ensuing disruptions from the virus outbreak, most of those loans have come mainly from the International Monetary Fund, with Africa dominating the lender’s COVID-19 emergency financing list.

The Fund late April approved $1.23 billion of emergency funding for Kenya and Uganda, saying the pandemic will likely exact a severe toll on the two East African economies. The $739 million Rapid Credit Facility is meant to boost Kenya’s international reserves to help cover the balance of payments shortfalls this year while also providing resources to improve public health and support for households and companies hit hard by the crisis, the IMF said at the time.

In addition to the IMF loan, Kenya has also turned to the World Bank ($6.6 million and $1 billion for budget support), the United States government, as well as raised about $20 million from private sector firms and individuals to finance its COVID-19 response. Among the six East African Community member states, Kenya has borrowed the most with an estimated $2.5 billion secured since March.

Uganda meanwhile has added $540.2 million to its debt load, $491.5 million of that from the IMF, $32 million from the European Union, a total of about $14.2 million from U.S. Agency for International Development and $2.1 million from Denmark, for health emergency response and to protect its economy.

Rwanda has borrowed $109.4 million from the IMF to ease foreign exchange pressures with an additional $11 million in debt service relief under a special programme for a period of six months, $14.25 million from the International Development Association for its Covid-19 emergency response arsenal, and $100 million from the World Bank for budget support. The government is expected to also borrow from the African Development Bank in the coming weeks. 

Nigeria is the biggest recipient of the IMF emergency lines so far. Africa’s largest economy secured $3.4 billion from the Fund late last month under the Rapid Financing Instrument. Also, the government was said to be in talks with the World Bank for a $2.5 billion loan, a $1 billion loan from the African Development Bank, and an undisclosed amount from the Islamic Development Bank.

Across the rest of the continent, the IMF has disbursed $226 million to help shield Cameroon from trade shocks amid the pandemic and $1 billion to protect Ghana from the effects of the COVID-19 outbreak. While the World Bank has since approved a $7.5 million IDA grant to Sierra Leone, $20 million credit for Senegal, $47 million to fund the emergency response in the Democratic Republic of Congo.

However, the borrowing spree is not limited to Africa. Even in the Western world, borrowing has soared to sky-high levels. Amid the unprecedented global economic slump, governments are writing millions of cheques to households and firms in order to help them survive the pandemic as well as buffer their respective economies.

But unlike their western counterparts whose borrowing is public or domestic, African governments will find it difficult to repay and service their loans, most of which are commercial and foreign-denominated. More so, declining revenue collections and tumbling external reserves exert pressure on local currencies, making foreign debt repayment more expensive.

African governments were already operating in high debt levels before the virus outbreak. Kenya’s total debt was way above the $60 billion regional mark (more than 60 percent of gross domestic) while Uganda’s total public debt stock as of January stood at $13 billion, about 36.5 percent of GDP. EAC countries held more than $110 billion in loans and as a whole, African nations were due to make $44 billion of debt payments in 2020 before the pandemic set in.

The plan according to most governments has been to request a foreign debt repayment holiday for at least two years to preserve finances and give enough room to deal with the economic shock caused by the coronavirus pandemic. But African countries will be living with the consequences long after the COVID-19 wards have emptied, experts have warned. 

For instance, an analysis by the IMF shows that the growing debt-to-GDP ratios leave Burundi, Kenya, Rwanda, Tanzania, and Uganda highly exposed to greater rollover and exchange rate risks. Particularly, the Bank of Uganda has warned there is a risk of the country sliding into a “debt repayment crisis” due to mounting expenditure pressures linked to the pandemic, on the back of a weakening economy and declining revenues.

Africa’s debt profile, characterized by slow growth in government revenue compared to the increase in debt stock (high debt-to-revenue ratio), has always sparked concern from economists and policymakers. The situation will definitely deteriorate further with the rate of borrowing seen so far amid the ongoing pandemic. This paints a gloomy and precarious picture as regards debt sustainability on the continent.

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