African countries heavily indebted to China have started renegotiating terms of some of their loans as they hunt for ways to manage their ballooning liabilities amid intense pressure to refinance debt before seeking support from the IMF.
The average government debt to gross domestic product has risen sharply in sub-Saharan Africa, from around 27% in 2012 to a hefty 56% at the end of last year, according to estimates from ratings agency Fitch. The Democratic Republic of the Congo is a standout example, with its total debt almost tripling from 40% of its GDP in 2011 to about 118% in 2017/18 according to the IMF, driven in part by a big uptick in bilateral debt provided by China to finance its ambitious public investment programme.
But the heavy debt burden is forcing countries to either renegotiate loan terms with China, or ask for debt forgiveness.
China this year extended the repayment period for $3.3bn of railway-linked loans to Ethiopia, while cancelling Cameroon’s $78m of debt. In 2018, it wrote off debt owned by Botswana and Lesotho, while cancelling millions owed by Sudan.
That’s unlikely to be the end of it, with sources telling GlobalMarkets that Djibouti, Angola, Zambia and Mozambique are also seeking similar debt relief programmes with China. Congo was recently pushed to restructure some of its debt with the Asian country, before the IMF approved a three year extended credit facility worth around $449m in July this year.
“The issue that China, in the past, has not given the same attention to debt sustainability as the World Bank or Western governments, is one factor for the sharp rise in debt in sub-Saharan Africa since 2010,” Jan Friederich, head of Middle East and Africa sovereign ratings at Fitch, told GlobalMarkets.
“That is the consequence of interplay between China not paying that much attention to whether the situation they are lending into is sustainable, the obvious need for infrastructure in Africa, and also the relatively poor public financial management in many African finance ministries, where they don’t set themselves appropriate ceilings on how much debt should be accumulated.”
IMF competitor
Thomas Hugger, chief executive officer and fund manager at Asia Frontier Capital, said China was increasingly acting like a competitor to the IMF and the Asian Development Bank.
“If the IMF gives a loan, they ask for conditions like tax collection improvements etc,” he told GlobalMarkets. “But the Chinese don’t do that; they give the loan. It’s a competition that China is winning, because for them it’s a strategy — to strangle those countries and make them more reliant on them.”