Research On Africa's Foreign Debt Issues

Debt is a chronic problem along with Africa's development.This dissertation investigates the formation and development of Africa's debt issue,explores its causes,and summarizes the impact of the increasing size and risks of Africa's external debt on Africa and the China-Africa financing cooperation.Finally,policy recommendations for improving Africa's debt problem are proposed.The dissertation begins with an exploration on the formation and development of Africa's debt issue from the historical perspective.The history of the debt development in African countries is divided into four periods based on the international environment,domestic economic development and debt situation.The first period started from the 1950 s till mid-1970 s.During this period,Africa's economy developed rapidly,and the debt problem was starting to appear but it was not significant.The second period was from the mid-1970 s to the 1990 s.The two oil crises in the 1970 s led to stagflation in developed countries.Meanwhile,African countries' development strategies including import substitution and structural adjustment failed successively,causing continuous economic decline and rapid accumulation of debt.A debt crisis thus broke out in the 1980 s and 1990 s,which prompted international creditors to launch various debt relief measures in the late 1990 s.The third period was from 2000 to 2008,when the African economy grew rapidly benefited from the commodity boom,and the external debt dropped from $255.5bn to $186.4bn as the bilateral and multilateral debt relief initiatives were implemented.The fourth period was the international financial crisis in 2008 and the plunge in commodity prices in 2014,during which the African economy suffered serious adverse impacts.In the context of global monetary easing,African countries borrowed money to increase development expenditures,especially the massive investments in infrastructure.As the external debt reached $535bn by 2017 and some debt indicators got worse,the debt crisis appeared to emerge again,which is called the “New Africa's Debt Problem” in this dissertation for convenience.A widespread global concern has been aroused by the “New Africa's Debt Problem”,especially the question of whether the continuously increasing size and risks of African countries' debts will lead to a systemic debt crisis in Africa.This dissertation employs a variety of methodologies,including indicators analysis,debt sustainability framework(DSF),and horizontal and vertical comparisons,to analyze the “New Africa's Debt Problem”.In addition,five African countries,including Kenya,Djibouti,DRC,Congo and Zambia,are selected as case studies.The results indicate that the debt indicators in most African countries are still within threshold,and a debt crisis in the continental level may not happen in the short term.However,the results also show a trend of an increasing debt burden across the continent and an elevation of risks in the event of external shocks.The number of high-risk countries has increased and the debts in a few countries have become unsustainable.Compared with the “African Debt Crisis in the 1980 s and 1990s”,the “New Africa's Debt Problem” has shown some new features,such as a sharp decline in the proportion of preferential loans,the international sovereign bonds with interest rates as high as 5% to 16% issued by more African countries,and a rapid increase in the proportion of some African countries' debts from emerging countries,especially China.These factors have exposed African countries to higher risks of interest rate,exchange-rate and short-term debt service.Africa' debt problem has deep practical and historical causes.Two factors drove the subsequent debt problem.The First is the revenue-expenditure problems of the African governments.Debts increase as the spending exceeds the income.The second factor lies to the problem with debt management.A mismatch between debt structure and economic development can cause the increase of debt risks.From a historical perspective,the periodical appearance of debt problem is not only caused by Africa's economic vulnerability and heavy dependence on external financial resources,but also by the realistic decision for satisfying development needs of African countries in the ever-changing international environment.It actually reflects the ideological inertia in African countries that the internal accumulation is chronically ignored while external supports are to be counted on.During the ongoing “New Africa's Debt Problem”,African governments are inclined to be “short-sighted” due to multi-party democratization and tend to borrow more to meet election promises,thereby strengthening the inertia of dependence on external financial resources.Furthermore,the rapid growth of market-based financing in African countries has limited the operation room for policy when their fragile “single economic structure” confronts external shocks.In the 1980 s and 1990 s,many African countries fell into poverty as external debt rose to unsustainable levels.The “New Africa's Debt Problem” also has significant impacts on African countries,such as:(i)when the debt burden exceeds a certain threshold,the expenditure for investment may be crowed out in the financial budget,the rate of domestic investment is therefore likely to decline,and economic growth is restrained.(ii)The diversification of external debt sources has made it more difficult to debt management.This dissertation suggests that African countries need to make long-term and strenuous efforts in many aspects in order to realize a virtuous circle of “debt-development”,such as(i)a change of the psychology and inertia of external dependence;(ii)an effective mobilization of domestic financial resources and private funds;(iii)an extension of tax bases and an increase of productive expenditure;(iv)an improvement of debt management ability;and(v)an overall arrangement for the priority of development projects financed by external resources.More importantly,African countries should make great efforts to promote economic structural transformation and enhance capacity building of self-dependence development.The China factor raises widely concern in the “New Africa's Debt Problem”.Chinese loans to Africa have been growing rapidly since 2012,and occupied a share of 20% in Africa's external debt stock in 2017.Chinese loans helped to bridge the gap of financial resources in African countries,and also played an important role in breaking the bottleneck of Africa's development by significantly driving Chinese enterprises to invest in transportation,power,energy,information and communications,agriculture,manufacturing and industrial parks in African countries.On the other hand,there are problems in China-Africa financing cooperation that can be summarized as unsustainability,imbalance,and asymmetry.In the context that both size and risks of Africa's debt have been expanding continuously,not only has the service risk of Chinese loans to Africa been increasing,but there are adverse effects on China-Africa trade,construction and investment.The China-Africa cooperation is also exposed to a more complicated international environment of public opinion.In addition,China should improve the weakness in terms of management of overseas investment and financing.Based on the above findings,this dissertation proposes six policy recommendations,such as strengthening risk prevention and control of loans to Africa,exploring debt-equity swaps in existing projects,expanding the use of RMB in Africa,strengthening international tripartite cooperation,and promoting the innovation of China-Africa financing cooperation in order to help Africa's industrialization,improve its self-dependence development capacity and therefore solve its debt problem fundamentally.