Africa's Debt Service Outpaces Spending on Healthcare

Millions in Africa have been lifted out of poverty over the past decade, thanks in part to the purchase of Eurobonds and other forms of debt. In the decade to 2018, Africa’s external debt doubled to $385 billion, which it has largely succeeded in repaying.

But the cost to the continent has been exorbitant—way out of line with the cost of debt in the rest of the world.

Senegal, for instance, one of the continent’s most stable democracies, pays five times more on 10-year notes than Greece, which was devastated by the 2008 debt crisis and has a lower credit rating than Senegal. In Ghana, long touted as one of the world’s fastest-growing economies, borrowing costs are higher than those in protest-riven Belarus.

Two professors, Michael Olabisi at Michigan State University and Howard Stein at University of Michigan, found that between 2006 and 2014, sub-Saharan Africa paid a premium of 2.9% over the rest of the world on its debt, equivalent to $2.2 billion.

This has meant that many African countries are spending more on debt service than on healthcare—Angola, seven times more; Cameroon, six times more; and Ghana, four times more.

The problem, says Kristalina Georgieva of the International Monetary Fund and others, is the so-called “Africa premium,” which is essentially a surcharge on the continent's borrowings due to its perceived instability, corruption, and mismanagement.  While some African countries, like Zambia, suffer financial mismanagement and are high risk for creditors, many others are unfairly suffering the consequences of this perception.