Explaining Africa’s Debt: The Journey So Far and the Arithmetic of the Policymaker

Abstract

This paper provides a trajectory of Africa’s debt levels over the past decades. We observe that, the continent’s debt-to-GDP is rising and approaching levels that could potentially cause distress and reverse economic gains registered over the period. While Africa’s growth prospects are promising, the real interest rates could be rising in the future due to slowing growth in emerging markets and tighter global financial conditions. With the interest rate–growth differential as the main drivers of overall debt dynamics, we argue that, African countries should aim at high real growth rates as a key element of their debt sustainability strategy. Overall, this paper recommends that policymakers could reduce the debt-to-GDP ratio by accelerating growth and improving primary balances.