Chart of the Week: Composition of External Debt Stocks in Africa

By Christina Duran

China has been under international scrutiny for its loans to developing countries, while simultaneously being criticized for not playing an active role in helping countries under debt distress. Following China’s announcement in August that it would waive 23 overdue interest-free loans with maturity by the end of 2021 for 17 African countries, the news from Beijing elicited media coverage of the international community’s interest in China’s motivations.

But how much of African countries’ debt stock is owed to China? How do other creditors like bondholders, multilateral banks and other bilateral lenders stack up?

The International Monetary Fund’s Debt Sustainability Analysis (DSA) framework is often used to examine Chinese loans to developing countries. In a recent working paper, Yan Wang and Yinyin Xu argue that completed infrastructure projects, co-financed and jointly built by China and African host countries, form part of a country’s public operational assets that generate essential social services, jobs, government revenues, exports and growth, and add to the understanding of debt sustainability. They find that without assessing the complete public sector balance sheet of both assets and liabilities, as the DSA framework does not, debt in Africa looks particularly dire.

In this Chart of the Week, Figure 1.5 from the working paper examines the composition of external debt stocks for 48 African countries that frequently report this data to the World Bank. Wang and Xu investigate only the public and publicly guaranteed (PPG) external debt, which comprises long-term external obligations of public debtors (the national government, state-owned enterprises, development banks, and other mixed enterprises), subnational governments and external obligations of private debtors that are guaranteed for repayment by a public entity.

Sources: Public and publicly guaranteed (PPG) external debt, based on World Bank IDS database, accessed in March 2022.

The chart illustrates the breakdown of PPG external debt stocks, varying widely among African borrower countries. The PPG external debt stock can be classified into private and public creditors, then further divided by the debt owed to bilateral creditors, multilateral creditors, bonds, commercial banks and other private creditors. For all countries studied, debt to multilateral creditors, such as the World Bank’s International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD), account for 32 percent of the total debt stocks. As of 2019, the private sector accounts for 40 percent of the continent’s external debt, including bondholders, commercial banks and other private creditors. In comparison, China, as a bilateral creditor, on average accounts for 13.4 percent of the total debt stocks. The researchers found that for 30 of the countries, the external debt to China was less than 20 percent.

Over the past two decades, China has grown to become the world’s largest bilateral official creditor, but in the grand scheme of debt finance, debt from China does not make up the majority of external debt stocks for African countries as a whole, as is often purported. The misperception of the principal holders of sovereign debt diverts attention from devising solutions to tackle the looming debt crisis.

With developing countries having been hit the hardest by compounding crises, from COVID-19 to climate, critical examination of debt in developing countries has become especially important. In their paper, Wang and Xu ask the International Monetary Fund and Western institutions to reconsider their approach to debt sustainability in the Global South, where continued poverty in developing countries has not been aided by successive rounds of stimulus.

Read the Working Paper

 *

Never miss an update: Subscribe to the Global China Initiative Newsletter.