How to Stabilize Africa’s Debt
IMF News, July 8, 2025
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- Authors: Athene Laws
- Published: July 8, 2025
Overview
- Context: high global uncertainty, tighter global financial conditions, and rising borrowing costs have increased concerns about sub-Saharan Africa’s debt vulnerabilities.
- Main conclusion: Successful debt stabilization requires measures to strengthen public finances and institutions, alongside pro-growth structural reforms and a sound macroeconomic environment.
- Source context: analytical note in the IMF’s Regional Economic Outlook for sub-Saharan Africa using a new data set to analyze when, how often, to what extent, and how debt stabilization was achieved.
Frequency and nature of debt-reduction episodes
- More than 60 debt reduction episodes (defined as periods of two or more years during which the public debt-to-GDP ratio fell).
- The probability that a country will experience such an episode in any given year is one in four.
- Many episodes occurred amid unfavorable external environments (after the commodity super cycle and in the wake of the COVID-19 pandemic).
- Magnitude and persistence:
- Most episodes involved a decrease of more than 10 percentage points of GDP.
- Almost half of those episodes lasted four or more years.
- Examples:
- Democratic Republic of Congo’s debt ratio fell by 15 percentage points of GDP during 2010–23.
- Cabo Verde’s debt ratio decreased by more than 30 percentage points over 2021–23.
Drivers of successful debt reduction
- Sustained debt reduction typically reflects both:
- Budgetary consolidation (increase in primary balances).
- Real economic growth.
- Interaction: Budgetary consolidation is itself more likely when growth is rapid.
- Exceptions: In fragile and conflict-affected states, as well as low-income countries, growth is the predominant driver of many successful reductions in debt.
- Institutional and external conditions that raise the probability, significance, and persistence of debt reduction:
- A solid domestic institutional framework and a supportive domestic business environment.
- Buoyant global growth.
- Low global borrowing costs.
- Presence of an IMF-supported arrangement (points to importance of international financial and policy support).
- Exchange rate considerations:
- Exchange rate stability can support successful debt stabilization.
- Maintaining an overvalued exchange rate can prove counterproductive as it is likely to lower growth and hamper overall macroeconomic stability.
- Example: Mauritius experienced a reduction in the debt ratio of almost 20 percentage points during 2003–08, supported by a favorable domestic and external environment, solid growth, and a stable currency.
Policy implications and recommendations
- Fiscal adjustment works best when complemented by:
- Pro-growth structural reforms.
- Measures to strengthen institutional frameworks.
- Specific fiscal and institutional measures:
- Well-designed fiscal rules to ensure off-budget fiscal operations do not undermine debt reduction.
- Sustained budget consolidation to translate into debt consolidation.
- Macroeconomic stability, including low and stable inflation, to support debt efforts.
- Efficiency in taxation and spending:
- Seize the opportunity to tax and spend more efficiently.
- Strengthen fiscal balances in a growth-friendly manner by broadening the tax base.
- Remove inefficient tax exemptions.
- Ensure that money is well spent.
- Role of external support:
- Support from the international community, including technical support and concessional financing, is critical.
- External support can help countries—especially fragile states and low-income countries—manage difficult trade-offs between short-term macroeconomic stabilization, longer-term development needs, and social acceptability of reforms.
Athene Laws and Thibault Lemaire are economists, and Nikola Spatafora is a senior economist, in the IMF’s African Department. —This blog is based on an analytical note for the IMF’s Regional Economic Outlook for Sub-Saharan Africa authored by Athene Laws, Thibault Lemaire, Rachid Pafadnam, Nikola Spatafora, and Khushboo Khandelwal.