Public Debt Accumulation in SSA: A Looming Debt Crisis

Abstract

AbstractThis paper discusses recent debt trends and evaluates performance of debt sustainability analysis (DSA) conducted in a sample of Sub-Saharan African (SSA) countries over the period 2008–16. Based on qualitative and quantitative analyses, the findings suggest the existence of systematic optimism bias in past DSA vintages resulting from optimistic macro-economic projections that underpin the DSAs. As a result, the DSAs for the sample countries analysed projected higher debt carrying capacities, which in most cases led to a faster pace of debt accumulation during this period. Moreover, this was not helped by the fact that average interest rates on new debt commitments were rising faster relative to gross domestic product growth rates, while the necessary fiscal adjustment to counter this development remained insufficient. Countercyclical policies supported by fiscal buffers that were used to address the impact of the 2008 global financial crisis have largely not been reversed despite the erosion of the buffers and a pick-up in growth in some countries. As a result, the overall risk of debt distress in the region has deteriorated in the past decade. Going forward, strengthening analytical/research work on country macroeconomic projections underlying their DSAs, relationship between investment and growth, impact of natural disasters on DSA frameworks and quantifying and monitoring fiscal risks would be important pieces of work in leveraging DSA results for financing and policy decisions. Other supporting issues to embrace include capacity building to enhance quality of policies, transparency and accountability at institutional level; managing roll over risk; developing and implementing sound debt management strategies.