The recent announcement that China will cancel the interest-free debts of African countries originally due to mature by the end of 2020 is a huge relief to the continent. Chinese President, Xi Jinping, who made the disclosure at the Extraordinary China-Africa Summit on June 17, said the relief would be extended to the debt owed by “relevant” African nations within the Forum on China-Africa Cooperation (FOCAC) framework. According to him, the move is part of Beijing’s efforts to relieve Coronavirus-stricken countries of financial distress.
Xi reiterated that the Chinese government would work with members of the G20 to help Africa overcome the global crisis. He also stressed that the G20 should consider extending debt service suspension to hard-hit countries in other parts of the world as well.
The move by China came on the heels of the resolution by the International Monetary Fund and the World Bank for a moratorium on debt repayments of 77 developing countries. About 40 of these countries are located in the sub-Saharan Africa. Besides, many African leaders had petitioned Beijing for debt write-offs due to the financial devastation caused by the pandemic. Moreover, most countries in the region are heavily dependent on commodities for export earnings, with oil as the biggest source of foreign exchange. The recent collapse of oil prices has thrown these economies into immense stress.
We recall that the World Bank has predicted that sub-Saharan Africa will fall into its first recession in 25 years as a result of the COVID-19 outbreak. A report of the International Monetary Fund (IMF) in April projected Africa’s economic growth to contract by 1.6 per cent this year amid tighter financial conditions, sharp decline in key export prices and severe disruptions in economic activities linked to the pandemic. African businesses and households are already suffering liquidity challenges caused by the virus.
This informed the demand by Africa on international organisations to support its call for a moratorium on all external debt and some debt write-offs, in order to ease the burden of the pandemic.
It is laudable that China is thinking along this line. China happens to be Africa’s biggest lender with debts worth more than $150 billion between 2000 and 2018. As of 2018, an estimated 20 per cent of all African governments’ debt is owed to China. Due to the magnitude of these debts, China is playing a special role for the debt relief campaign for Africa.
Aside other financial and institutional challenges, the COVID-19 outbreak has made it very difficult for African countries to pay back, given the impact of the pandemic on economic activities on the continent. We commend and urge the Chinese authorities to walk the talk in the debt relief.
Africa has had a long relationship with China in areas of trading, construction, pharmaceuticals and agriculture. Beside multilateral engagement with countries on the continent, China has bilateral relationship with some states. Recently, it sent some medical personnel and equipment to Nigeria in support of efforts to tackle the COVID-19 pandemic. There are many Chinese firms in different sectors in the country. Such is the situation in other countries in Africa. Therefore, China needs Africa and vice-versa.
We welcome the move to cancel Africa’s debts considering that some of the debts are controversial and are already bad debts. It makes sense to cancel them. African leaders should not however see the gesture from China as perpetual. Going forward, whatever financial obligation or debts entered into should be honoured by respective countries. Any borrowings from any sources or institutions should be tied to specific projects with capacity to pay back in due course. Africa should not expect debt forgiveness as a matter of right.
The 2019 World Bank Economic Prospects report which warned against unsustainable accumulation of external public debt as reason for underdevelopment in some countries, should guide their actions in future borrowings. Public debt as a percentage of GDP is already reported to have doubled in more than a quarter of sub-Saharan African countries like Angola, Cameroon, Equatorial Guinea and Nigeria. The profile of average public debt from 2010 to 2018 has increased by half from 40 per cent to 59 per cent of GDP, thereby making Africa the fastest growing debt accumulating region in the world. Further accumulation of unsustainable debt will mortgage the future of the continent.