Foreign debt sustainability and human development in Sub Saharan Africa

Gianni Vaggi and Luca Frigerio ()
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Luca Frigerio: University of Pavia

No 203, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: Despite the debt relief initiatives at the turn of the century, the external debt of Africa is rising again with some new worrying features: diminishing concessionality, growing private component and a strong presence of opaque Chinese loans. Sub-Saharan countries devote a relevant portion of their fiscal resources to service the debt, this prevents them from increasing development expenditures. The 2020 Debt Service Suspension Initiative, DSSI, by the G20 recognizes these difficulties but it falls shorts from providing long term solutions. We evaluate external debt sustainability in four SSA countries: Cote D’Ivoire, Ethiopia, Ghana, and Kenya plus a composite country called Wakanda, representative of the whole region. We adopt a framework called geometry of Debt Sustainability, GDS, (Vaggi and Prizzon 2014) which focuses on some structural aspects of sustainability, in particular on the current account. We add a Human Development factor to the basic GDS model in order to evaluate how debt sustainability could change if these countries should improve spending on health and education. The results confirm a clear trade-off between debt service and human development expenditures. The model shows that even before the Covid-19 pandemic the four countries and Sub Saharan Africa were on unsustainable debt trajectories; the debt to GDP ratios would stabilize only at extremely high values. The results are coherent with the Debt Sustainability Analysis of the International Monetary Fund and the World Bank.

Keywords: Debt relief; External debt sustainability; Development finance; Public Expenditure Allocation (search for similar items in EconPapers)
JEL-codes: E60 F34 H63 O16 (search for similar items in EconPapers)
Pages: 39
Date: 2021-05
New Economics Papers: this item is included in nep-afr and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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