She is the last to sound the alarm. "Debt vulnerabilities in low-income countries have increased dramatically in recent years"warns the World Bank (WB) in its report on the global economy, released Tuesday (January 8th). The flagship institution of development aid does not go so far as to mention the imminence of a crisis. But in a specific chapter, she is worried about the risk of slippage in this group of countries, the vast majority (27 out of 33) are located in sub-Saharan Africa. A recurring refrain, these last months, in the cenacles devoted to the poorest States.
And for good reason: in 2017, the average debt of low-income countries exceeded 50% of their gross domestic product (GDP), against about 30% in 2013. Some trajectories are spectacular. In the Gambia, the burden has fallen from 60% to 88% of GDP in four years and debt service captures 42% of state revenue. In Mozambique, defaulting on certain interest payments, public debt jumped from 50% to 102% between 2013 and 2018.
According to the World Bank, eleven countries are now over-indebted or in the process of becoming over-indebted. There were only six in 2015. The hardest hit are states in conflict, with weak governance or highly dependent on raw materials. But the runaway is also the legacy of years of strong growth. At the end of the 2000s, states had just seen their slate erased, thanks to extensive debt cancellation operations led by the World Bank and the International Monetary Fund (IMF).
Taking full advantage of the commodities supercycle, they have strongly mobilized foreign capital to finance public investment or, more frequently, consumption. The vertiginous fall in prices between 2014 and 2016 reversed the situation, dragging exports and national currencies, and deepening deficits.
China has become a major creditor of Africa
The World Bank is not only pointing to the rising curve of debt but also the profile of creditors. "Low-income countries have increased their reliance on non-traditional sources of funding"says the report. In other words, the share of public actors and large multilateral lenders, issuing loans on preferential terms, has declined. Especially in favor of commercial lenders practicing higher rates.
In recent years, many low-income states have risen in the markets to raise money. Among them, Ethiopia, Rwanda, Senegal and Tanzania have issued bonds denominated in dollars or euros. Some of these operations are coming to an end and will have to be refinanced, at a time when the markets are less serene and the investors more cautious.
At the same time, China has become a major creditor of the continent. But it does not belong to the Paris Club, a group of rich countries where restructuring operations are being negotiated. What can be said of the problems of 'Coordination' between different donors, in case of future debt crises, says the Bank.
In addition, the loans granted by these non-traditional lenders are sometimes accompanied by "collateralisation" requirements, ie barter agreements, complex and opaque, where the fresh money is exchanged for oil or infrastructure. In addition to the traditional recommendations to increase tax revenues, the World Bank is urging states and creditors to work towards greater "Transparency".