New York, Oct 4 – High-interest rates, growing investor risk aversion, and soaring borrowing in recent years have plunged various developing economies into crippling debt crises. Addressing this pressing issue will be a top priority at the annual IMF and World Bank meetings in Marrakech, Morocco, commencing next week. Below is a closer look at countries confronting debt troubles, listed alphabetically, along with forecasts for Nigeria’s economic growth in 2023.Thank you for reading this post, don't forget to subscribe!
Nigeria, Africa’s most populous nation, grapples with a triple whammy of challenges in 2023. Firstly, the country’s foreign debt has spiked significantly, raising concerns about repayment. Secondly, the Naira’s value has been under immense pressure, resulting in economic uncertainty. Thirdly, chronic dollar shortages persist, affecting trade and investment. Despite these challenges, Nigeria is projected to achieve modest economic growth in 2023, with forecasts suggesting a GDP growth rate of approximately 2.5%. The government’s efforts to diversify the economy and attract foreign investment are expected to play a role in this gradual recovery.
North Africa’s largest economy faces the daunting task of repaying approximately $100 billion of hard-currency debt over the next five years. Cairo’s financial situation is compounded by spending over 40% of its revenues on interest payments. In fiscal 2023/204, Egypt’s financing needs stand at a staggering $24 billion. To address these challenges, Egypt has sought assistance from the IMF, implemented a significant devaluation of the pound, and initiated privatization plans. However, progress has been slow, and electricity subsidies’ removal has been delayed.
Ethiopia, in addition to contending with a debt crisis, suffered severe economic setbacks due to the COVID-19 pandemic and a two-year civil war beginning in November 2020. The loss of duty-free access to the U.S. amid allegations of rights abuses further exacerbated the nation’s woes. Ethiopia initiated a debt restructuring under the G20 Common Framework in early 2021, and 2023 holds promise for progress, with Moody’s changing its credit outlook from negative to stable. Notably, China’s partial debt payment suspension in August offered some relief.
Ghana defaulted on most external debt in late 2022 amid its worst economic crisis in a generation, becoming the fourth country to seek debt restructuring under the Common Framework. While progress has been relatively swift in restructuring both domestic and external debt, Ghana secured a $3 billion IMF bailout in May. Despite these efforts, recent protests in Accra reflect rising living costs, unemployment, and economic hardships. The country’s finance minister aims to reach a deal with international bondholders by year-end.
Kenya confronts a high risk of debt distress, with public debt reaching 67.4% of GDP at the end of 2022. President William Ruto’s government has taken measures to moderate spending and proposed tax hikes to address these challenges. However, surging oil prices have led to inflation, and the currency has depreciated by over 16% against the dollar in 2023, raising doubts about the government’s ability to implement reforms. Kenya is in talks with the African Development Bank and the World Bank for budgetary support as it prepares to repay a $2 billion eurobond next year.
Lebanon’s economic meltdown, ongoing since 2020, shows few signs of resolution. The IMF welcomed changes in the country’s central bank, but deeper reforms are deemed necessary due to Lebanon’s “difficult and unstable” outlook. If the status quo continues, Lebanon’s public debt could surge to a staggering 547% of GDP by 2027.
Pakistan faces the daunting task of securing over $22 billion to service external debt and cover fiscal obligations for 2024. The country, in the midst of historic high inflation and interest rates, continues to recover from devastating 2022 floods. A last-minute deal for a $3 billion IMF bridge loan in June provided some relief, followed by cash infusions from Saudi Arabia and the UAE. Nonetheless, questions linger about Pakistan’s ability to avoid default without substantial support.
Sri Lanka defaulted on international debt in May 2022 due to the pandemic’s impact on its tourism-dependent economy. While progress has been made in implementing a debt overhaul plan, disputes persist over burden-sharing among domestic banks and investors in state-owned enterprises. The potential delay in receiving the next tranche of a $2.9 billion IMF bailout package adds to the uncertainty.
Tunisia, since a 2011 revolution, has faced multiple shocks that have pushed the North African nation into a full-blown economic crisis. Although most of the debt is internal, the maturity of a $500 million eurobond this month raises concerns about possible default. President Kais Saied has expressed dissatisfaction with the terms required to unlock a $1.9 billion IMF loan, complicating efforts to stabilize the economy.
Ukraine, after freezing debt payments following Russia’s invasion in 2022, faces critical decisions in early 2023. Estimates suggest the post-war reconstruction cost could reach at least 1 trillion euros. The IMF estimates that Ukraine requires $3-$4 billion per month to sustain the country. While signs of economic recovery have emerged, political shifts in the United States and elsewhere have cast doubts on the sustainability of international support.
Zambia, the first African country to default during the COVID-19 pandemic, has grappled with years of restructuring delays, highlighting challenges with the Common Framework. However, a debt rework deal with the Paris Club creditor nations and China offers hope for economic recovery in Zambia in 2023. The country expects to finalize a debt memorandum by year-end.
As these challenges persist, it remains crucial for developing nations to address debt crises and collaborate on a global scale to ensure economic stability and growth.