The Myth (or Folly) of African Debt

Despite past debt relief initiatives, the external debt of Africa is rising again, and it has some new worrying features: diminishing concessionality and a rising private creditor. Sub-Saharan African countries devote a significant portion of their fiscal resources to service the debt, and this prevents them from increasing development expenditures (generally imports of strategic goods that can't be produced domestically). By adding a human development factor to the Geometry of Debt Sustainability model (GDS) (Vaggi and Prizzon 2014) and following the analytical framework of Pasinetti (1998), we assess how external debt sustainability changes when countries increase the foreign currency purchasing of health and education goods and services. Not only these types of human development expenditures are central to the Sustainable Development Goals (SDGs), but they have become even more important due to impact of the Covid-19 pandemic on many low income countries (LICs). We evaluate external debt sustainability in two African contexts: Kenya and a composite country, called Ubuntu, which is representative of Sub-Saharan Africa average indebtedness conditions. The results confirm the existence of a trade-off between debt service and human development expenditures. Even before the Covid-19 pandemic, the Sub-Saharan African countries were on unsustainable debt trajectories as the debt-to-GDP ratios would stabilize only at extremely high values.