Africa's Debt Burden Eroding Funds for Sustainable Development in Ldcs

23 December 2024

Africa Renewal (United Nations)

By United Nations Economic Commission for Africa

Soaring repayment costs leave Africa's Least Developed Countries struggling to fund health, education and SDG priorities

Africa's rising debt burden is eroding funding for sustainable development in the Least Developed Countries (LDCs), impacting heavily on health and education, says Ms. Oyebanke Abejirin, Economic Affairs Officer, at the Macroeconomics, Finance & Governance Division of the UN Economic Commission for Africa.

Making a presentation on the opportunities and challenges for Africa's Least Developed countries (LDCs), at the Second Session on the Committee on Economic Governance in Addis Ababa, Ethiopia, Ms. Abejirin explained that high debt servicing costs reduce the capacity for SDG-related spending causing a real decline in health and education funding across many countries.

She noted that debt distress worsens the public financial positions of African LDCs. Debt servicing reached a record 11.6% of the exports in 2022.

In 2021, she said, African governments allocated 4.8% of GDPs to debt servicing compared to 2.6% for health and 4.8% for education.

"Social protection systems in Africa LDCs are severely inadequate; only 12-13% of the population is covered," she added and stressed that inclusive, robust social protection "is essential to shield the LDCs from global and regional shocks including post-COVID-19 effects and climate change-related disasters."

Ms. Abejirin highlighted a need to strengthen domestic revenue generation to help close the significant gap in financing the SDGs in Africa.

According to Ms. Abejirin, African LDCs make up 33 of the 45 LDCs contributing to less than 1% of the global GDP despite having 10% of the worldwide population.

She emphasized Africa's need for a public debt sustainability framework that includes linking debt obligations to productive investment, improving fiscal and debt transparency and developing a framework for responsible borrowing.

Sharing the Mozambique perspective on debt servicing, Ms. Pamela Mabanda, from the Ministry of Finance, said the country is experiencing a trade balance deficit, importing more than exporting with imports mainly consisting of intermediate and capital goods.

The sustainability of the economy, she said, is threatened by the high proportion of expenditure (almost 70%) going towards debt repayment, which limits resources for investment and support.

Strategies are being developed to address these challenges and improve the fiscal space for sustainable development.

"There is a need to improve domestic resource mobilization and reduce tax evasion, especially for the main imports in the country," noted Ms. Mabanda.

She emphasized the importance of fiscal consolidation to reduce expenditure and increase revenues through diversification of financial funds and a proactive approach to macro-fiscal risk.

Mr. Allan Mukungu, Economic Affairs Officer at UN ECA, discussed the inability of African countries to finance their needs due to fiscal deficits, with an average public debt of 67% in 2024.

"Nine African countries are in debt distress and 11 are at high risk, making them vulnerable to financing issues. The focus should be on creating fiscal space to finance sustainable development and meet the Agenda 2063 aspiration," he said.

Mr. Mukungu pointed out the importance of the integrated national financing framework (INFFs) for financing SDGs.

"INFFs help to unlock financing for national development priorities by aligning available financing with the national development plans.

About the Economic Governance Committee.

The second Economic Governance Committee session was held in Addis Ababa in mid-November, with representatives from 31 countries in attendance.

The session aimed to discuss the issues and challenges of financing for sustainable development in Africa, with a focus on the 4th International Conference on Financing for Development in 2025.

Read the original article on Africa Renewal.