How Africa’s ‘ticket’ to prosperity fueled a debt bomb

​Article Link Here​

As soon as Africa went through a debt relief process in 2005-2015, they immediately reloaded at the urging of the UN and multilateral development banks. That efficient capital markets and credit ratings are needed for the development of Africa is clear; but they were clearly pushed too far, too fast.

The article fails to mention the critical importance of efficient tax and revenue collection which should precede reliance on debt for development. Without efficient administration of tax and revenue collection, issuing debt is like trying to deal with a leaky water jug by simply refilling it with water.

From the IMF:

"Sub-Saharan African countries lag significantly in revenue collections, with a median tax ratio of only 13 percent of GDP in 2022, compared with 18 percent in other emerging economies and developing countries and 27 percent in advanced economies."  

On a separate note, several years ago I submitted a proposal to the US Treasury, International division via a former Moody's colleague that suggested creating a multinational emerging market sovereign debt Fannie Mae. Without getting into details, the idea was to create a global emerging market sovereign debt securitization vehicle to more efficiently resolve debt burdens and create a liquid, sustainable, diversified market for sovereign debt. The vehicle (likely administered by the IMF) would handle both restructuring as well as issuance. Investors could participate via pooled investments or specific countries. There would also be a standardized mechanism to deal with holdout investors for countries going through default.

Key article takeaway:

"Instead, the push for credit ratings set these nations on a path to debt many could not afford." 

#sovereigndebt

#creditratings

#africa

#subsaharanafrica

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