Debt in Africa | Shedding light on the darkness of national debt

Crises, hunger, and unemployment – ​​these prejudices still shape the world's image of Africa. On top of that comes a mountain of debt. Last year, African states had to raise tens of billions of dollars in interest payments to banks, investors, and investment funds.

In many countries, interest payments at least equal the total expenditure on public healthcare and even exceed spending on education. From a fiscal and economic perspective, such an interest burden represents a colossal waste of public funds.

The World Bank, the World Trade Organization (WTO), research institutions, and development organizations have repeatedly attempted to shed light on the murky world of debt relations between the Global South and the Global North. They have had some success. However, many questions remain unanswered.

The Kiel Institute for the World Economy (IfW) is attempting to provide answers for Africa with a new database. With the "African Debt Database," the institute recently presented a globally unique collection of data on the public debt of African states, explains Christoph Trebesch, Director of the Research Center for International Finance at the IfW, regarding its significance.

The database records all domestic and foreign debt securities of 54 African states concluded between 2000 and 2024 – a total of more than 50,000 contracts with a volume of approximately US$6.3 trillion. For each contract, the currency, maturity, interest rate, creditor, and type of debt security are documented. According to Trebesch, this provides the most comprehensive overview of sovereign debt on the continent to date.

A key objective of the project is public access to the data. This is intended not only to aid research and policy advice, but also to facilitate democratic oversight of public finances.

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Africa's debt markets are apparently larger and more complex than previously known. Analysis of the data reveals four key trends: First, domestic debt markets – particularly in middle-income countries – have expanded rapidly. Second, there are significant differences in borrowing costs and real interest rates. Third, maturities and repayment risks vary considerably between countries. Fourth, the debt burden, especially from international bonds, has increased significantly.

“It becomes clear how heavily African states rely on their domestic capital markets today – and how unequal the conditions for doing so are,” says Christoph Trebesch. The new database also demonstrates that debt transparency is feasible even “in data-poor environments” – a crucial factor for sound government fiscal policy and macroeconomic monitoring.

The database and the accompanying research paper were the collaborative work of a team from the Geneva Graduate Institute, the Global Sovereign Advisory, the UN Economic Commission for Africa, the World Bank, the Aix-Marseille School of Economics, and the Munk School at the University of Toronto. "Building the database meant bringing together thousands of government documents and transferring them into a consistent database," explains Niccolo Rescia, an economist at the Global Sovereign Advisory in Paris. This was made possible, in part, with the help of AI-assisted text recognition.

In summary, the study authors send a positive signal: The increasing shift towards domestic debt offers countries opportunities for greater financial independence. However, this also entails new risks. For example, short-term loans increase the risk of financial crises, while high domestic interest rates can strain debt sustainability.

Nevertheless, “functioning domestic capital markets are crucial for mobilizing local savings and reducing dependence on development loans (from the Global North),” asserts Ka Lok Wong, an economist at the UN Economic Commission for Africa. Providing reliable data could strengthen the confidence of domestic and foreign investors in the future and contribute to the improvement of African financial markets.

A key objective of the project is the public accessibility of the data. The database is freely available online – including documentation and source references. This is intended not only to aid research and policy advice, but also to facilitate democratic oversight of public finances.

Another study by the Kiel Institute for the World Economy (IfW) paints an optimistic picture. Globally, 100 million new jobs are expected to be created by 2029 – more than 75 million of them in the 54 countries of Africa. These figures are based on the assumption that job creation will continue at its current pace. While population growth is still strong, economic growth is accelerating in many African countries.