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UNCTAD report reveals that Africa borrows more from private creditors that from multilateral and bilateral ones

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A new report from UNCTAD calculates that public debt worldwide has increased more than fivefold in the past two decades, outpacing global GDP. The many crises that have occurred in recent years, such as COVID-19, the cost-of-living crisis and climate change have contributed to this growth. Obviously, borrowing means paying interests: money that could otherwise fund public expenditure, is sectors such as health and education, or other important investments needed for development. The UNCTAD report shows that in developing countries, such higher rates are much higher, compared to developed countries. Not surprisingly, Africa is the region in the world where interest on debt is highest.

African States borrow on average at rates that are 4 times higher than those of the United States and eight times higher than those of Germany. What the UNCTAD report shows is that private creditors currently fund about 44 per cent of the Africa’s external public debt, while in 2010 this share was only 30 per cent. Borrowing from multilateral creditors (such as the World Bank or the African Development Bank, for instance), as well from bilateral creditors has instead significantly reduced, as shown in the figure below. Private creditors include commercial banks, bondholders, and other private creditors.

The increasing share of public debt owed to private creditors, concludes the report, has worsened the debt, as it presents two challenges:

1) borrowing from private sources is more expensive than concessional financing from multilateral and bilateral sources. This because concessional finance has more generous terms than market loans, including below-market interest rates, longer re-payment terms, grace periods (in which the loan recipient is not required to make debt payments for several years) or a combination of these advantages.

2) private lending can be quicker to obtain, but the growing complexity of the creditor base makes it more difficult to restructure it, each time countries have difficulties to paying it back. A warning, this, that was already issued by World Bank in the International Debt Report 2022.

 

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