COVID-19 has thus far unfolded as the quintessential ‘black swan’ event – it came out of nowhere and overturned the global financial and geopolitical status quo. Moreover, the pandemic’s upheavals are far from over, as with each passing month that the virus continues to spread, states sink deeper and deeper into economic and, eventually, political distress. This is particularly true of the developing world, where several states were taking on dangerous amounts of debt before the virus even appeared, and many of them can be found on the African continent.

Analysis

According to the most recent data released by the IMF, there are 26 countries in the developing world which are now classified as “high risk” for debt distress (defined as a country which is already experiencing difficulties in servicing its debt and is at high risk of defaulting in the future). It’s no secret that the debt problem is as severe as it is potentially systemic, linked as it is to the ongoing COVID-19 pandemic. As evidenced in the recent past, financial collapse gives way to mass migration, sectarian violence, and humanitarian crisis. According to UN Secretary-General Antonio Guterres, the debt crisis in the developing world could trigger a chain reaction of insolvency that results in a global depression.

In order to head off such a possibility, the G20 tabled an initiative in April to freeze loan repayments through 2020 for at-risk developing states, and there have been calls to extend the scheme through 2021. But the plan is not without its detractors in the private sector and very few developing states have been willing to sign on to the scheme for fear of downgrades and retribution from future investors. The phenomenon highlights shifting dynamics in foreign aid, away from the state-centric model of previous decades and toward greater private sector involvement (along with China’s hybrid model of state-controlled lending entities). How these new actors participate in debt relief efforts, if at all, remains to be seen.

Just to get a sense of the extent of this growing debt-load: according to Fitch, the government debt-to-GDP ratio for 19 of the most debt at-risk countries in sub-Saharan Africa will be a whopping 71% by the end of 2020. The median budget deficit – a key indicator of the debt crises of tomorrow – will be 7.4%.

A few notable inclusions on the IMF’s list of distressed states include: