Earlier this year, the World Bank warned that “60% of the poorest countries were already in debt distress or at high risk of being so” – mainly in Africa – and that up to a dozen were at risk of default. over the next 12 months.
The largest series of debt crises in developing economies in a generation threatens to bring social and humanitarian catastrophe to a continent already reeling from falling prices for its export commodities, the economic fallout from the pandemic of COVID-19 and the criminal response of the ruling classes, drawing inspiration from the “let it rip” policies of imperialist powers.
Africa has seen soaring food, fuel and fertilizer prices, depleting foreign exchange reserves, following the US-NATO led war against Russia in Ukraine. Twenty-three of Africa’s 54 countries depend on Russia and Ukraine for more than half of their commodity imports. Some countries are even more dependent: Sudan, Egypt, Tanzania, Eritrea and Benin import 80% of their wheat and Algeria, Sudan and Tunisia more than 95% of sunflower oil from Russia and Ukraine.
They also see higher prices across the board, exacerbating hunger in conditions where ruling elites across the continent refuse to divert even the meagerest resources to poverty alleviation and use brute force to impose suffering. massive.
Global inflation has pushed millions of people into poverty. The World Bank has warned that the number of Africans living in extreme poverty is set to rise from 424 million before the pandemic in 2019 to 463 million this year, more than a third of the continent’s 1.2 billion people. Millions face starvation as World Food Program appeal for $24 billion – to reach 153 million people by 2022 – only half funded as major powers divert resources to the war effort.
Nigeria, Africa’s most populous country, has seen prices rise by more than 20% while its currency, the naira, has fallen 25% against the dollar since the start of the year, despite a rise of 250 basis points in interest rates since May. . In Ethiopia, prices increased by 32% and the value of the birr fell to around 82 against 1 dollar in the informal market, against 60 at the beginning of June. In Ghana, prices rose 31 percent and the currency plunged while Accra raised rates aggressively to stem the slump.
After a decade of rising debt, with Eurobond financing as the main element, which saw government borrowing in 65 developing countries increase by 18% of GDP and in sub-Saharan Africa by 27% of GDP, the pandemic has increased l total indebtedness of the two countries. called emerging markets and developing economies to their highest level in 50 years, more than 250% of government revenue.
Nearly 60% of the poorest countries were already in debt distress or at high risk, while debt service levels in middle-income countries were at their highest level in 30 years, with burdens tripling between 2010 and 2021 .
Zambia defaulted on its debts at the end of 2020 and Mali at the start of 2022. Now major African countries are considered unlikely to repay $21.5 billion of their Eurobonds, not including the cost servicing these loans. This includes Ghana, which owes bondholders more than $4 billion between June 2022 and May 2027, Kenya, with a bond repayment bill of nearly $3 billion over the next five years, and Ethiopia with a $1 billion Eurobond due in 2024, amid ongoing conflicts. affecting several regions of the country. Nigeria’s ability to pay, which owes nearly $2 billion in Eurobond repayments, is also in doubt.
Most of their loans come from commercial creditors, as opposed to governments and multilateral financial institutions such as the World Bank and the International Monetary Fund (IMF), their debts now involve variable interest rates, which means that their charges are set to rise as interest rates follow the rise in the US, the European Central Bank and the UK. This risks precipitating large capital outflows and forcing African central banks to raise interest rates, plunging their economies into recession.
With much of their debt denominated in dollars, the value of which has risen sharply, debt servicing costs will increase even more. This forces countries in sub-Saharan Africa to seek debt relief or restructure simply to repay their creditors, mainly European and American.
The US-China rivalry in Africa, which has become a key battleground of competing interests, makes it even more difficult for African countries to reschedule their debts. Washington has sought to paint the continent’s growing indebtedness as the result of China’s lending aimed at gaining political leverage and seizing African assets when states default as part of its increasingly belligerent stance. towards Beijing.
While China’s lending grew rapidly from the early 2000s to resource-rich African states, particularly oil producers, after 2015 as commodity prices and growth rates fell, loans fell sharply from a high of $29.5 billion in 2016 to $7.6 billion in 2019 and continued to fall. Its loans were mainly for infrastructure projects to build and upgrade more than 10,000 kilometers of railways, about 100,000 kilometers of highways, 1,000 bridges and 100 ports, as well as power stations, hospitals and schools. China now accounts for around a fifth of all lending to Africa.
As Debt Justice pointed out in a July report drawing on World Bank data, African countries’ Chinese lending, mostly to state-owned banks, accounts for a third of their lending to non-Chinese private lenders, while interest rates are barely more than half (2.7% against 5%). He revealed that Chinese public and private lenders accounted for just 12% of the continent’s $696 billion in external debt in 2020, compared to 35% owed to other private creditors.
The US government and the World Bank have sought to undermine China’s lending to Africa by classifying the China Development Bank and the Industrial and Commercial Bank of China as “official creditors” or state institutions, even if they lend at commercial rates. This makes them liable to debt freezes under the Debt Service Suspension Initiative (DSSI) and the Common Framework, regimes so heavy with restrictions that only Chad, Ethiopia and Zambia have applied, while private lenders, mostly Western, are exempt from these restrictions.
The result has been to make it virtually impossible for African states to obtain debt relief from multilateral organizations, while enriching US creditors.
Zambia is a good example. While earlier this month the IMF approved a $1.3 billion loan to Zambia, which defaulted in 2020 on its $17.3 billion external debt, much of that sum will go to BlackRock, the world’s largest investment fund, which holds $220 million of Zambian debt purchased at half face value. According to Debt Justice, BlackRock should make 110% profit for itself and its customers if debt interest payments are paid in full.
The combined effect of the debt crisis and the cost of living in poor countries in Africa, where 60% of its 1.2 billion people are under 25 and almost a billion under 35 years, leaves most of them struggling to earn a living. The past few months have seen mass protests and strikes in Sudan, Tunisia, South Africa, Ghana and Nigeria expressing anger at social conditions and at the ruling elites who imposed them.
These growing protest movements must unite their struggles with those of their class brothers and sisters across Africa and internationally against capitalism, expropriating wealth from their venal rulers and financial institutions, and fight for the socialist reorganization of society. . This necessitates the building of sections of the International Committee of the Fourth International across the African continent.