Dealing with Africa’s risk of debt distress

Zambia’s recent sovereign default has cast a shadow of a looming wave of debt restructuring in Sub-Saharan Africa. The Covid shock has brought a significant risk of debt distress in several African countries, by exacerbating vulnerabilities that have built up over the past decade. While liquidity facilities through the DSSI and emergency lines have provided temporary support to many countries in the region, solvency issues remain and the prospect of debt restructuring is gaining ground. In this context, the methodology of the IMF and the World Bank remains the most suitable tool for assessing debt sustainability for low-income countries. The framework for common treatment of restructuring has recently been extended to all creditors. Given the scale of its financial commitments to African countries, China’s participation is essential. So far, the country has demonstrated a lack of transparency and limited cooperation. Its commitment to the common framework for debt treatment thus remains to be confirmed.

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