Warning signs from Africa?

Warning signs from Africa?

Sanjay G. Reddy writes:

Illustration: Volker Straeter

Debt crises are a risk for developing countries. After independence in sub-Saharan Africa, there was an increase in debt to governments, the World Bank, the IMF. This led to a debt crisis in the 1980s and 1990s. Debt relief with the Highly Indebted Poor Countries Initiative helped the crisis, A condition was agreeing with free-market policies. And growth in the 2000s helped the crisis. Growth in the 2000s was because of growth in commodities and good global economic growth.

But the risk of a debt crisis is there again for sub-Saharan Africa. Debt there has almost doubled between 2008 and 2016, to more than 450 billion dollars, and more than a fifth is to private lenders. If this continues, especially if with low commodity prices and higher global interest rates, it may not be possible for some countries to repay their debts. This will be a big problem for economic and social investment and make it unlikely to achieve the UN’s Sustainable Development Goals, as they depend on good progress in sub-Saharan Africa.

The world has failed to take action to find systems to stop debt crises or to do something about them. There needs to be a sharing of risks between debtors and creditors, as domestic bankruptcy law ensures. There has been a lot of discussion in academic circles and international agencies about the logical and practical way to do this. It is time to take action and to find systems. If not, then a global economic downturn or other events which make debts unsustainable will be create big problems in Africa and globally.

Sanjay G Reddy is Associate Professor of Economics in the New School for Social Research, New York.

NOW READ THE ORIGINAL: https://newint.org/features/2018/07/01/the-next-financial-crisis

(This article has been simplified so the words, text structure and quotes may have been changed)