Concern is mounting among market watchers, investors and non-governmental organisations. As UN Secretary General António Guterres recently warned, “many African countries now spend more on debt repayments than on healthcare.”
The bigger picture
While the UN’s warning is valid, the belief that countries deemed at ‘high risk of debt distress’ are destined for a liquidity or solvency crisis doesn’t always hold, including for those that have issued Eurobonds. In recent years, several issuers, including Angola, Nigeria and Ivory Coast, have successfully reduced their external debt burdens. Innovative instruments such as debt-for-development swaps, which allow the exchange of expensive commercial debt for cheaper concessional debt, are gaining traction. In the Ivory Coast, one such transaction, supported by the World Bank, created fiscal space for an additional €330 million in primary education spending over the next five years.
Oil right on the night
Debt reductions tend to occur during periods of positive real growth, fiscal consolidation and falling inflation. Angola is a case in point, where global oil prices and domestic production levels matter – nearly 75% of government revenues come from the hydrocarbon sector. In 2021, the country’s debt/GDP ratio stood at 119%. By the end of 2024, it was 70%, with recent figures showing a further decline to 58%.
After 2022, resurgent oil prices helped support the current account deficit. The subsequent strengthening of the Angolan Kwacha was also a boon, with around 80% of the country’s debt denominated in foreign currency. Proactive policy measures, including a hike in diesel prices to mitigate the impact of poorly targeted subsidies, have also had a positive impact. According to the International Monetary Fund, the government now has an additional US$3 billion (bn) to invest in education and health. This funding is critical in a country where income inequality ranks among the highest in Africa.
Angola is not out of the woods. Much of the debt owed to China, its largest creditor, is backed by oil. However, the country has been actively paying down this debt amid high oil prices. In 2024, Angola was one of a handful of African nations to run a current account surplus, with a budget deficit of just 1%. No small feat.
Lessons from Zambia
While Finance Minister Vera Daves was steering Angola toward firmer ground, Zambia chose the path of least resistance. In the run-up to the 2020 election, the government continued to spend freely on infrastructure projects, including the Batoka Gorge hydropower plant. The result: Zambia defaulted on its debt obligations, severely limiting access to external financing.
Debt in distress
Africa is not immune to debt distress. Take Senegal. Following President Faye’s election victory in April 2024, an official audit of the previous administration’s public accounts uncovered over $7bn in hidden debt. The country’s debt/GDP ratio has since ballooned to around 120%, and gross financing needs will remain elevated for years to come. Faye was elected on a platform to tackle the cost of living, so it is no surprise that he has chosen not to reduce poorly targeted fuel subsidies or cut capital expenditure. But Senegal’s path to avoiding a debt restructuring is narrowing.
It’s all in the details
Whether we like it or not, bondholders’ concerns are rarely front and centre in policymakers’ minds. Their decisions must balance political and social implications, with consequences for a wide range of stakeholders, not least the electorate, to whom they are ultimately accountable. To form a more informed view, as bondholders we must engage directly with government officials, civil society groups, local banks, journalists and other key creditors. We cannot simply rely on market speculation, which is often misleading.
How future creditors come together to resolve cases of debt distress is a topic of discussion for another day. Today’s restructurings are more complex, with the traditional Paris Club no longer the largest creditor group. Policymakers will need to overhaul flawed initiatives, such as the G20 Common Framework, to shorten the timescales of future restructuring negotiations. Ultimately, the path to long-term debt sustainability in Africa is far more nuanced than many would have us believe.
Final thoughts…
Africa’s debt landscape is evolving. While risks remain, especially in countries like Senegal, others, such as Angola, are making meaningful progress. For investors, this means moving beyond headline figures and engaging more deeply with local stakeholders. Understanding the political landscape, the role of local players, and the impact of policy reforms is essential. Debt sustainability in Africa is not a binary story of crisis or stability – it’s a complex, dynamic picture that can create opportunities for informed investors.