CAIRO -- Falling commodities prices have rekindled fears that resource-dependent African countries, which went on a borrowing binge amid the market boom that lasted until 2014, could once again fall into a debt crisis.
Angola, the continent's second-largest oil producer, began talks on a bailout with the International Monetary Fund this month. It hopes to receive up to $4.5 billion in loans over three years in exchange for undertaking major fiscal reforms.
Zambia, among the world's biggest copper producers, also effectively requested assistance from the IMF in March after concluding that its budget deficit was unsustainable. Ghana started receiving help from the fund last year.
African countries issued large amounts of foreign-currency-denominated bonds after major economies agreed in 2005 to forgive much of the debt by countries in the sub-Saharan region. South Africa, Egypt and Tunisia were the only African nations that could issue bonds on the international market in 2007, but 15 more later joined the ranks, according to PricewaterhouseCoopers.
African countries have issued $110 billion in public and corporate bonds over the last five years, 72% of which were denominated in dollars. Resource-dependent countries have seen their currencies plummet against the greenback with the swoon in commodities prices, making dollar-denominated debt an even heavier burden.
International institutions, such as the IMF and the World Bank, usually set stringent restrictions on how governments can use their loans. But private-sector bondholders make no such demands. Some of the debt did finance necessary investments in long-term growth. But many say that the bonds mostly contributed to a bloated public sector, such as by raising government workers' wages.
Not only do Angola and Zambia depend on resource exports for most of their government revenue, but they also rely on China as their key market. The Asian giant, however, faces an economic slowdown, and is starting to make a switch from a manufacturing-based economy to a service-based one.
The ratio of government bonds to gross domestic product among countries in sub-Saharan Africa is expected to rise from 28.9% in 2009 to 35.6% this year, according to the IMF. The figure may seem low compared with Japan, for example. But the countries' growing dependence on foreign currencies could turn into a serious problem.
These countries must not fall into a debt trap again, warns African Development Bank President Akinwumi Adesina.
Resource-based countries built up their foreign reserves during the commodities boom, and few think they face an immediate crisis. But debt could hinder the continent from solving its long-term problems, such as a lack of infrastructure and investment as well as pervasive poverty.
The Tokyo International Conference on African Development will be held in August in Kenya. Participants must discuss how to best aid the continent amid the changing economic environment.