COVID-19 AND INCREASED SUB-SAHARAN AFRICAN DEBT: WHY AID ISN'T THE ANSWER.

• Author: Tayebjee, Zara

INTRODUCTION

"COVID-19, through economic and health shocks, has greatly awakened us to African debt fragility and unsustainability." (1)

There is no question that the COVID-19 pandemic has negatively impacted the global economy. However, countries in sub-Saharan Africa are uniquely affected. Their already unsustainable debt burden has been made worse over this period. This effect comes from two factors: increased borrowing to finance the purchasing of PPE and funding of stimulus programs, and decreased economic opportunities for tourism-reliant countries as the world saw a broad-based decrease in travel. Heitzig et a1. (2) estimate that African countries have taken, on average, 4.5% of increased debt year-over-year during the pandemic, over and above the already unsustainable levels that plagued the continent pre-COVID. With this increase in debt and decrease in GDP due to COVID, there have been increasing calls to forgive or relieve African debt.

The African continent now finds itself in the same context as the 1980s--heavily overloaded in debt, discussing new debt relief programs. In the past, when in this situation, the IMF and World Bank created two debt relief initiatives: the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI). Though these programs were well-intentioned, they were unsuccessful in that they failed to meet their three main aims: reduce debt, increase development, and decrease corruption. Instead, they created incentives for increased borrowing, allowed politicians to line their pockets with money targeted for development, and overall left HIPC countries worse off.

Since neither the structure of debt relief nor the political conditions present on the continent have significantly changed, debt relief as it is being proposed now would be catastrophic for African countries' futures--leading, as in the past, to insignificant developmental increases, corrupt governments, and more unstable debt policies.

THE HISTORY OF DEBT RELIEF IN AFRICA PRE-HIPC

The history of high levels of debt in Sub-Saharan Africa begins in Cold War politics. Many dictatorial African states throughout the 1950s and into the 1960s post-independence received sympathetic financing in the form of loans from Cold War powers. These loans were not doled out with the intention of making money. Instead, they created political ties between African states and their creditors in order to induce a sense of loyalty. While these loans were framed as beneficial to African states, they in fact contained payback structures that were infeasible given states' average development and GDPs. Rather, the intention behind this was to ensure that African states remained loyal to Cold War powers for long periods of time, as loans would accrue interest that made them even harder to pay back, thus keeping African states in relations with these powers for extended periods of time. This can be quantified by the large debt-to-GDP ratios of the time, in some states reaching over 350%. In comparison, Krugman (3) estimates that only a 70% debt-to-GDP ratio is sustainable.

To make matters worse, most African regimes in this period were corrupt and dictatorial. Many African dictators entered loan contracts with the aim of advancing their own economic standing, typically through corruptly siphoning off loans at the expense of the country and its future development. (4) Furthermore, as some regimes were tenuous, African leaders had little incentive to engage with long-term planning and thus did not find issue with taking on a high debt burden. (5) The result was poor development, absent planning, and high African debt.

As countries began to democratize in the 1960s and 1970s, there was a push to forgive debt taken on by these dictatorial regimes. The "We Are the World" movement, in particular, aimed to give newly democratized African countries a fresh start by forgiving past debts and moving forward with a clean fiscal slate. Several independent, country-specific debt relief programs were proposed by Bretton Woods institutions, aimed at reducing debt burden. On the whole, these programs--despite being tailored to a specific country's needs--failed to understand the cultural and political context of many of the states that they operated in. For example, in several cases, the debt relief programs pushed for increased industrialization at the expense of agrarian lifestyles, failing to appreciate the cultural importance of farming for many tribes as well as generating mass displacement. (6)...