The rising costs of repaying debts to global financial institutions continue to be a heavy burden for Africa and the developing world in general.
This was a grave concern raised during this week’s 81st United Nations General Assembly, where some world leaders called for reform of global financial institutions seen as entrenching unsustainable debt-servicing.
Joining the call were also African leaders who warned that unreformed global financial institutions are crippling development, health and education spending across Africa and the developing world while undermining democracy.
South Africa's Minister of International Relations and Cooperation, Ronald Lamola, added his voice, stating that governments are forced to choose between serving their citizens and paying creditors.
“In the last year alone, African countries spent roughly the same amount on servicing debt as is needed to close our infrastructure financing gap. This grim reality inspired South Africa’s G20 Presidency to focus on debt sustainability.
“The Africa Expert Panel report calls for an end to incrementalism. It supports multilateral efforts to establish a Borrowers’ Club to counterbalance the power of creditors and calls for greater debt transparency and greater scrutiny of credit rating agencies,” Lamola said.
He noted that unsustainable debt betrays the promise of development and destroys the prospects for democracy.
Lamola made a clarion call for multilateral action to free up resources absorbed by debt-servicing and redirect them toward development.
Recently, South Africa secured a $1.5 billion World Bank loan for infrastructure and job creation, making it the fourth development policy loan to the country since 2022.
The bank reportedly said most job gains are expected from reforms in the electricity and transport sectors, which could create about 280,000 jobs by 2027 and more than 560,000 by 2032.
The loan was secured despite Finance Minister Enoch Godongwana previously conceding that rising debt-service costs are straining the fiscus, with the government spending more than R1 billion a day to service its existing debt.
Lamola warned that with only 36% of the Sustainable Development Goals on track, time is running out.
“Africa and much of the Global South need multilateral action to free resources absorbed by debt service and redirect them towards development. We must close the financing gap for the 2030 Agenda and meaningfully advance implementation of the African Union’s Agenda 2063,” he said.
Kenyan President William Ruto was also vocal about how unreformed global financial institutions entrench inequality.
He noted that for too many countries, fulfilling the promise of social progress, better living standards and economic advancement remains a pipe dream, as resources are consumed by debt before they ever reach their people.
“Global public debt reached a record $102 trillion in 2024. Developing countries accounted for less than a third of that debt, yet paid about a trillion dollars in interest on debt in that year alone. Put it differently, 46 developing countries now spend more on interest on debt than on classrooms and medicine. Behind these numbers lies a simple reality. The hospital competes with a creditor. The classroom competes with debt service. And too often, the creditor, debt service, is paid first. And it is our children who inherit the consequences,” he said.
Ruto further highlighted that the countries that most need capital frequently pay the highest price to obtain it.
“Developing countries have recently borrowed at rates two to four times higher on average than developed nations. The question, therefore, is not simply whether finance is available. It is: Who can access it? At what price? For how long? And under whose assessment of risk? Africa knows the cost of that assessment. Sovereign credit rating shapes perceptions of risk,” he said
Three African countries, Senegal, Mozambique and Malawi are reportedly facing potential sovereign debt defaults within the next two years as escalating oil prices linked to the conflict in Iran intensify fiscal strain across the continent.
rapula.moatshe@nationalmg.co.za