Trapped by mounting debt, Africa pushes for a financial reset

As the world wrestles with rising inflation, increasing geopolitical fragmentation and conflicts, African countries are facing a debt crisis that threatens to unravel hard-won development gains. More than 25 nations across the continent are now classified as either in or at high risk of debt distress, according to the International Monetary Fund.

According to United Nations Conference on Trade and Development (UNCTAD), public debt in developing countries hit an all-time high of $31 trillion in 2024, with interest payments alone exceeding $900 billion. For many African states, debt servicing now consumes a disproportionate share of national budgets, and in some cases exceeding spending on education or healthcare. 

Last month, the Jubilee Report, commissioned by the Vatican’s Pontifical Academy of Social Sciences (PASS) and Columbia University’s Initiative for Policy Dialogue (IPD) revealed that between 2012 and 2022, 46 developing countries spent more on debt interest payments than on healthcare, up from just 36 a decade earlier. Among them,15 low-income and lower-middle-income nations, most in sub-Saharan Africa, prioritized debt interest over life-saving services.

UNCTAD’s World of Debt Report shows that between 2021 and 2023, Africa spent $70 per capita on interest payments, significantly more than the $63 per capita it spent on education, and the $44 per capita on public health. A staggering 61 countries now dedicate over 10% of government revenues to interest payments, leaving dwindling resources for essential services. 

While these governments continue to absorb losses, international financial institutions (IFIs) walk away with lump some profits. In 2023 alone, private creditors extracted $33.4 billion more than they disbursed to low- and lower-middle-income countries. The result is arrested development; funds that could spur economic transformation now directed towards debt.

At the African Union’s first Debt Conference held in Lomé, Togo, in May, leaders and experts proposed concrete reforms to address rising debt distress across the continent. “We must ask ourselves what truly constitutes sustainable debt,” said Togo’s President Faure Gnassingbé in his opening address. “Many African countries face competing pressures, servicing debt while addressing healthcare, education, and security needs. Without peace, there can be no development.”

Stakeholders at the conference further focused on solutions to strengthen debt governance and improve transparency. Emphasis was placed on aligning debt practices with national development objectives. “This is a pivotal moment for the continent,” said Moses Vilakati, acting AU Commissioner for Economic Development. “We must build robust national frameworks for debt management, enhance transparency, and ensure all borrowing supports transformative and inclusive development.”

SDG Financing

It is widely estimated that achieving the Sustainable Development Goals (SDGs) by 2030 will require global investments of up to $4 trillion. According to the United Nations Economic Commission for Africa (UNECA), Africa alone requires $130 to $170 billion annually to address shortfalls in energy, water, and transport infrastructure. While successful implementation of the SDGs would require $1.3 trillion annually, at the moment African countries can only mobilize a little over 50% of what is needed to end extreme poverty, hunger and inequality, build resilient infrastructure, and tackle the impacts of climate change. Moreover, studies show that this gap could sharply rise to $19.5 trillion as the population expands by 43% over the next 20 years.

Overall, these shortfalls highlight both the urgent need for debt restructuring and increased investment to foster sustainable growth in Africa. Africa remains the most underdeveloped continent globally, with over 70% of the world’s least developed countries (LDCs). The African Union’s strategic framework for achieving inclusive and sustainable development across the continent over a 50-year period (2013–2063), dubbed “Agenda 2063”, envisions a prosperous Africa based on inclusive growth and sustainable development. 

The framework foresees an integrated continent with world-class infrastructure and development that is people-driven. The current debt architecture makes it difficult for African states to invest in the very sectors Agenda 2063 prioritizes: infrastructure, industrialization, education, energy transition, and climate resilience. As a result, debt restructuring is a prerequisite for unlocking Agenda 2063’s full potential.

Fixing the G20’s Debt Architecture

The G20 Common Framework, introduced in 2020 as a mechanism for coordinating debt restructuring among bilateral and private creditors, has been widely criticized for being slow, opaque, and unfit for purpose. 

At the African Debt Conference, leaders resoundingly called for a complete overhaul of the framework, demanding the introduction of time-bound negotiations, the suspension of debt servicing during restructuring, and the inclusion of middle-income countries. Termed, the Lomé Declaration, these commitments offer practical, immediate fixes that could unlock breathing room for countries teetering on the edge of default.

A key development is the AU’s resolution to adopt a Common African Position on Debt. For decades, African countries have negotiated debt restructuring individually, often under immense pressure and with limited leverage. This fragmented approach has arguably weakened Africa’s collective influence and prolonged debt resolution processes. 

The African Union now seeks to leverage its full G20 membership. African countries aim to present a unified front in demanding fairer terms, increased concessionality, and comprehensive debt relief. This common position is more than a political gesture. It sets a foundation for collective bargaining in multilateral fora, better aligns African debt priorities, and introduces standardized principles for debt management and sustainability. 

Moreover, the AU proposes embedding carbon credits, debt-for-nature and debt-for-development swaps into the restructuring framework, aligning debt relief with long-term investments in climate resilience and sustainable growth. 

Africa’s Own Financial Safety Nets

Recognizing the limitations of donor-driven systems, African countries are now investing in homegrown financial institutions to reduce external dependency. Two critical proposals from the AU Declaration include the establishment of the African Financing Stability Mechanism (AFSM) and the long-awaited African Credit Rating Agency (AfCRA).

The AFSM is set to provide liquidity and emergency support to countries facing refinancing risks, similar to regional mechanisms in Asia and Latin America. This could prove vital as many African nations face surging interest costs and shrinking access to international capital markets. 

The African Credit Rating Agency (AfCRA), meanwhile, is aimed at correcting longstanding biases in global rating methodologies that have unfairly inflated Africa’s risk profile, driving up the cost of borrowing. Unlike previous technocratic reforms, these initiatives are symbols of a broader shift toward continental fiscal sovereignty.

Another emerging idea involves reimagining and redefining debt sustainability. African leaders argue that current frameworks such as the IMF-World Bank Debt Sustainability Analysis (DSA), penalize countries for investing in essential areas like climate adaptation, health systems, and peacebuilding. These investments, while costly upfront, generate long-term social and economic returns and are crucial to building resilience.

“Credit rating methodologies must evolve to reflect the structural progress and reform potential of African economies, not merely penalize volatility we did not create,” said Ghanaian President John Dramani Mahama at the Debt Conference.

The AU Declaration calls for these “global public goods” to be excluded from DSA constraints and urges multilateral lenders to shift toward more pragmatic, development-oriented metrics. This aligns with growing global recognition, including from UNCTAD, that the tools used to assess debt viability are outdated and counterproductive.

Africa’s Future Beyond Debt

The Lomé Declaration also emphasizes that Africa’s financing strategy must go beyond traditional borrowing. Leaders committed to mobilizing concessional resources, expanding Public-Private Partnerships (PPPs), tapping into carbon markets, and issuing sustainability-linked bonds to finance development in a fiscally responsible way.

Crucially, the AU reaffirmed the importance of domestic resource mobilization, from improving tax efficiency to curbing illicit financial flows, as the bedrock of fiscal independence. These efforts, combined with international reforms and regional coordination, can help Africa escape the debt trap once and for all.

By prioritizing debt restructuring, investing in homegrown solutions like the AFSM and AfCRA, and advancing innovative financing solutions aligned with sustainable development, the continent is reclaiming fiscal sovereignty. The path forward demands global cooperation, but its momentum must be driven from within.