A new report by the International Monetary Fund (IMF) has found that China is not the main cause of debt distress in Sub-Saharan Africa.
The report, titled Regional Economic Outlook for Africa, found that Chinese loans account for just 6% of Sub-Saharan Africa’s public debt.
According to the report, some 60.9 per cent of the region’s public debt is now domestic commercial borrowing with higher interest rates and shorter maturities, while multilateral lenders hold 13.7 per cent of the debt.
“It is noteworthy that the debt owed to China has not been the principal contributor to the region’s public debt surge in the past 15 years,” the IMF stated in a side report about sub-Saharan Africa’s economic relations with China that it released early this month.
The IMF added that China’s share of the total sub-Saharan Africa external public debt rose from less than 2% before 2005 to about 17% – or US$134 billion – in 2021, saying “This figure is still a relatively small share of the region’s total external debt, which stood at US$790 billion in 2021.”
During this time, many critics, especially the US, have accused China of engaging in “debt trap diplomacy.” This allegation suggests that China provides loans to African countries with unfavourable terms, leading these nations into unsustainable debt burdens.
The IMF’s findings debunked the allegations, indicating that China has been a key player in recent debt restructuring and negotiations.
According to their report, China has been involved in a number of debt restructuring negotiations in recent years, and it has also contributed to the Debt Service Suspension Initiative, providing 63 per cent of suspensions in 2020 and 2021, despite owning just 30 per cent of the claims.
The IMF recommends that African countries focus on reducing domestic borrowing and improving their fiscal discipline in order to improve their debt sustainability.
Speaking to South China Morning Post, Aly-Khan Satchu, a sub-Saharan Africa geoeconomic analyst, said that the West has been exaggerating China’s role in Sub-Saharan Africa’s debt problems, while the IMF and the World Bank have been promoting a risky strategy of domestic borrowing.
“I think the IMF is stating the obvious and distancing itself from this long-embedded and erroneous narrative,” Satchu said.
He added that this has created a “negative feedback loop” in which local financial institutions, especially in countries like Ghana, are heavily affected by debt workouts and restructuring.