African debt crisis may have severe implications for world economy

By Patricia Cohen

After a new tax increase incited weeks of deadly riots in Kenya early this summer, President William Ruto announced that he was reversing course. He abandoned the finance law he had proposed, and then he shook up his cabinet.
 

Last week, the government reversed itself again. The newly appointed finance minister announced that some of those discarded tax increases would be reintroduced. The Ruto administration is desperately trying to raise revenue to pay off billions of dollars in public debt.
 

Governments throughout Africa are facing the same dilemma. The continent’s foreign debt reached more than $1.1 trillion at the end of last year. More than two dozen countries have excessive debt or are at high risk of it, according to the African Development Bank Group. And roughly 900 million people live in countries that spend more on interest payments than on health care or education.
 

 

Outsize debt has been a familiar problem in the developing world, but the current crisis is considered the worst yet because of the amounts owed as well as the huge increase in the number and type of foreign creditors. At the same time, economic stagnation in combination with government corruption and mismanagement has left many African countries more vulnerable to brutal wars, military coups and antigovernment riots.
 

The issue, though, is not just how much money countries like Kenya and Nigeria have borrowed, but whom they have borrowed from. In recent decades, the pool of potential lenders has exploded to include thousands of private bondholders and a major new geopolitical player: China.
 

China now accounts for 73 percent of bilateral borrowing in Kenya, 83 percent in Nigeria and 72 percent in Uganda, according to the United Nations Conference on Trade and Development.
 

Economic conditions and loan repayment prospects have soured, but China has been reluctant to offer debt relief. It has instead been holding out for repayment, extending credit swaps and rollovers that end up putting off the day of reckoning.


 

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