A new blog series examining the IDR 2022’s findings in greater detail at regional and individual country levels
With the global economic challenges that followed the COVID-19 pandemic, the combined debt stock of low- and middle-income countries rose by 5.6%, from $8.6 trillion in 2020 to $9 trillion in 2021. Globally, countries have devised policy responses to alleviate the economic shocks induced by the pandemic. However, debt accumulation is not evenly distributed across countries or regions. Some economies with existing debt vulnerabilities have become even more fragile, while others have seen their external debt stock reduced. In fact, statistics for country groups and regions mask the deterioration of debt outlook at the individual country level.
The outcomes are mixed at the regional level. South Asia, Latin America & Caribbean, and East Asia & the Pacific (the latter mainly because of China) recorded an accelerated debt accumulation in 2021 compared to the previous year. In contrast, the rate of external debt accumulation declined in Sub-Saharan Africa and the Middle East & North Africa, and contracted in Europe & Central Asia (mostly because of the decline of Türkiye’s short-term debt).
Sub-Saharan Africa’s (SSA) debt accumulation rate slowed from 5.6% in 2020 to 2% in 2021. Nevertheless, a closer look reveals that there are many countries with increased fiscal risk in the region. SSA is home to most of Debt Service Suspension Initiative (DSSI) eligible countries. Relatedly, 8 out of 9 countries assessed as already in debt distress by the recent Debt Sustainability Analysis (DSA) by the IMF are in the region.
The slowdown in growth of SSA countries’ external debt stock in 2021 was mainly the result of a 6% decrease in South Africa’s private debt. Excluding South Africa, the region’s external debt stock in fact increased by an average of 4.3% to $591 billion. Several countries’ external debt, such as Cote D’Ivoire’s and Senegal’s, increased by double-digits in both 2020 and 2021 (15.4% and 23% in 2021, respectively). Most SSA countries saw higher increases in external debt stock in 2021 than they did in 2020, while only a few countries’ external debt stock decreased.
The distribution and cause of debt accumulation in the region also vary greatly. Zambia’s external debt decreased by 15%, while the Republic of Congo’s external debt increased by 28%. The rise in the latter was mainly due to its reliance on private lending throughout 2021, while its external debt stock from official creditors, including both multilateral and bilateral creditors, barely changed. Burundi, on the other hand, turned to bilateral borrowing, increasing its bilateral debt stock from $3 billion to $5 billion.
Such large divergences among distressed countries softened their average change in debt accumulation. The average percentage change of debt stock for countries in debt distress is in fact lower than that of countries regarded as at ‘moderate’ or ‘high’ risk. The debt accumulated decreased by 0.8% in countries at debt distress. This might essentially be related to limited access to finance in 2021 with the debt burden soaring. Debt accumulation increased by 12.2% in countries with moderate risk, and 4.5% in countries at high risk. Averages, therefore, do not reveal the full landscape of SSA countries’ fiscal burden.
Similarly, there are individual countries whose private non-guaranteed (PNG) debt stock increased notably in 2021, whereas overall borrowing from private creditors did not. Over the past decade, SSA countries’ private external debt has always been higher than external debt owed to official creditors. Still, increases in external debt were not reflected in the overall PNG debt level of the region. The region’s long-term PNG debt and public and publicly guaranteed (PPG) debt stock from private creditors, remained almost unchanged throughout the COVID-19 pandemic in 2020 and 2021. SSA countries relied on official creditors, increasing their borrowing by 12% in 2020 and 4% in 2021.
Despite the illusion brought by the regional averages, at the individual country level, some countries in the SSA region appear to be more vulnerable to further shocks. In fact, Chad, Ethiopia, Zambia, and Ghana have already requested debt treatment under the Common Framework. The deterioration of the debt outlook of the SSA countries is especially concerning given the global economic challenges that have persisted through 2022 and beyond, intensified by the conflict in Ukraine. Under these circumstances, SSA countries’ debt outlook will likely worsen further. Policymakers in the SSA region must focus on enhancing their fiscal policies to better adjust to various external shocks, while decisive international cooperation on the creditor side would remain crucial.
 It decreased 0.2% in 2020 and increased by only 0.06% in 2021.