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Results BriefsDecember 15, 2023

Unlocking the Development Potential of Public Debt in Sub-Saharan Africa

The World Bank

Guaranteeing Success in Benin: A First-of-its-Kind Policy-Based Guarantee Unlocking Commercial Financing in Africa.

Photo: © Stephan Gladieu / World Bank


In the past five years, countries in Africa have experienced a considerable increase in public debt and risk, as the shocks from the COVID-19 pandemic and the war in Ukraine have compounded long-lasting structural weaknesses, including weak revenues, expenditure pressures, and weak growth. The World Bank and other creditors are utilizing various tools to assess risks to debt sustainability in lower-income countries in the region and to support impactful measures to address structural weaknesses to ensure that debt burdens do not overwhelm the ability to reduce poverty or provide essential government functions. The Bank is also helping countries improve their creditworthiness to leverage additional investments.


Unsustainable Debt is a Barrier to Development

Excessive public debt is a threat to the economic growth of low-and middle-income countries around the world, and if mismanaged could reverse decades of development gains. This is particularly the case in Sub-Saharan Africa (SSA), where the volume of nominal public debt has more than tripled since 2010, to about $1.14 trillion at the end of 2022, largely as a result of weak debt management systems, significant debt transparency issues, weak macro-fiscal management, greater reliance on costlier and riskier sources of financing, and adverse negative shocks. This trend shows no sign of letting up: the war in Ukraine halted the fiscal consolidation process of many countries in the region that started in the aftermath of the COVID-19 pandemic. Over the past decade, the composition of public debt has been shifting gradually toward domestic debt, and data suggests that there was even greater reliance on domestic debt to meet COVID-19-related financing needs.

As countries increasingly resorted to measures such as subsidies, temporary waivers of tariffs and levies, and income support for the most vulnerable people - in an effort to limit the rise of food, fertilizers, and fuel prices - the fiscal deficit of the region widened to 5.2 percent of GDP in 2022, up from an estimated 4.8 percent of GDP in 2021. This pushed the median public debt-to-GDP ratio from 32 percent in 2010 to 57 percent in 2022. The number of SSA countries at high risk of external debt distress or already in debt distress currently stands at 22 (up from 20 in 2020).


A Fair and Transparent Framework

The World Bank deploys a range of tools and strategies when supporting developing countries in managing and reducing their public debt. Debt transparency is one of the cornerstones of this approach. Policymakers in borrowing countries need reliable debt information to make informed borrowing decisions. Creditors, donors, analysts, and rating agencies need it to assess sovereign creditworthiness, and to appropriately price debt instruments. Citizens need it to hold their governments accountable, and debt transparency directly contributes to higher credit ratings, lower borrowing costs, and greater foreign direct investment (FDI) inflows. The World Bank’s institutions take a comprehensive approach to enhancing debt transparency - through their own engagement with more than 100 low- and middle-income countries, and in close collaboration with the International Monetary Fund (IMF).

The Bank’s annual Debt Reporting Heat Map presents an assessment based on the availability, completeness, and timeliness of external public debt statistics and debt management documents posted on national authorities' websites. The assessment of external public debt is complemented by the annual Domestic Debt Securities Heat Map.

The World Bank introduced the Sustainable Development Finance Policy (SDFP) during the COVID-19 crisis in anticipation of heightened debt challenges for developing countries. The SDFP incentivizes countries to move towards transparent, sustainable financing and investment practices, and promotes coordination between the International Development Agency (IDA) and other creditors in support of recipient countries’ efforts. It leverages the World Bank’s convening power to promote stronger collective action, greater debt transparency, and closer coordination among borrowers and creditors to mitigate debt-related risks. The SDFP strengthens IDA’s current debt-related policy framework through a more pro-active and systematic engagement on debt sustainability at the country level.

Under the SDFP’s Debt Sustainability Enhancement Program, each year, countries with elevated debt risks identify performance and policy actions (PPAs) that are key to enhancing debt transparency, fiscal sustainability, and debt management. IDA and other donors provide more concessional financing to countries with higher debt vulnerabilities. Countries assessed at high risk of or in debt distress, that borrow only from IDA, are provided with financing entirely in the form of grants.

The Debt Sustainability Framework for low Income Countries (LIC DSF) incentivizes countries to move towards transparent and sustainable financing to meet their development objectives, and to promote coordination between IDA and other creditors. Every year, it classifies countries based on their assessed debt-carrying capacity; estimates threshold levels for selected debt burden indicators; evaluates baseline projections and stress test scenarios relative to these thresholds; and combines indicative rules and judgements to assign ratings for risk of debt distress.

The Debt Management Facility (DMF), jointly administered with the IMF, is a multi-donor trust fund, offering advisory services, training and peer-to-peer learning to more than 80 developing countries around the world to strengthen their debt management capacity, processes, and institutions. The DMF strengthens debt management to reduce debt-related vulnerabilities and improve debt transparency. It supports capacity building and reform implementation on debt management and has supported over 350 Technical Assistance (TA) activities in 74 countries. Today, more countries prepare and publish debt management strategies; the quality of government debt records has improved; and many countries have improved the organization of their debt management institutions and coordination with fiscal policies.

The World Bank’s Global Debt Unit has supported the Public Finance Management Executive Training Series provided by the African Development Bank’s Public Finance Management Academy (PFMA). The main objective of the training is to strengthen the leadership skills and technical capacities of public officials involved in PFM in African countries to identify and utilize adequate debt management systems and tools in managing their public debts effectively and transparently.

World Bank guarantees

IDA offered to support Benin with $180 million equivalent of policy-based guarantees (PBGs), which cover commercial lenders against the risk of debt service default by sovereign governments.


Supporting Governments in Debt Management Strategies

In FY23, 36 countries in Africa out of 63 IDA countries globally were required to prepare Performance and Policy Actions (PPA), under the SDFP. 29 countries, 14 in Eastern and Southern Africa and 15 in Western and Central Africa, had approved PPAs in this period, of which 48 percent addressed at least one PPA on debt transparency. Furthermore, 79 percent  of countries in the region have at least one PPA that addresses debt management and 69 percent that address fiscal sustainability. In Kenya, the Bank has helped strengthen the Public Debt Management Office since 2019, supporting a decline in debt owed to commercial sources, from a peak share of 35.6 percent in 2019 to 28.8 percent in 2021. The second Inclusive Growth and Fiscal Management Development Policy Operation (DPO) in Kenya also supported the government’s transparency efforts in publishing tender documents through an online portal, as well as providing for penalties for collusive behavior. From a base of zero in 2017, the cumulative 2021 value of contracts published amounted to around $3.4 billion.

In 2021, after several years of decline in gross national income (GNI) per capita, exacerbated by the impact of the COVID-19 pandemic, Zambia was re-classified as low-income for the first time since 2011, with 60 percent of the population living on less than $1.90 a day. At the same time, the Zambian Government was facing the challenge of unsustainably high levels of sovereign debt; without a timely debt resolution, the development gains that Zambia had achieved in the past two decades would be wiped out. In February 2022, Zambia formally requested a treatment of its debt from the Paris Club in application of the Common Framework - a mechanism created by the Group of 20 major economies in late 2020 to help poor countries weather the fallout from the COVID-19 pandemic - for debt treatment beyond the Debt Service Suspension Initiative. The IMF Executive Board approved a $1.3 billion 38-month Extended Credit Facility (ECF) Arrangement in August of that year. Restoring macroeconomic and debt sustainability, strengthening governance, and promoting private-sector-led inclusive growth are critical areas of the World Bank’s work with the Zambian government. The Bank is working closely with the IMF, the G20, and the Creditor Committee to support the Common Framework process as a path to long-term debt sustainability.

In November 2022, the government of Chad reached an agreement with its creditors that paved the way for more funding from the International Monetary Fund under the Common Framework. The agreement allowed for a further disbursement from Chad’s $572 million, four-year Extended Credit Facility (ECF) program with the IMF. The ECF provides medium-term financial assistance to low-income countries with protracted balance of payments problems. The Liberia Inclusive Growth DPO Series helped increase the number of state-owned enterprises (SOEs) with debt published in the Public Debt Management reports from 0 in 2020 to 15 in 2022, and is helping reduce tax expenditures from 33 percent of revenues in 2018 to a target of 20 percent by 2023.

In 2022, Burundi’s nominal public debt stood at $1.9 billion, or 54.6 percent of GDP, with domestic debt representing 77 percent of the total. However, the government has made efforts to ensure that the debt risk rating does not deteriorate further, and has reached an agreement with IMF on economic policies and reforms to be supported by a new 40-month Extended Credit Facility. The reform program aims to support the economic recovery from shocks, restore external sustainability, and strengthen debt sustainability while creating fiscal space for accelerated and inclusive growth. As a result, Burundi is expected to have access to more external borrowing sources, using various borrowing instruments. The Ministry of Finance, Budget, and Economic Planning (MFBEP) requested the assistance of the World Bank to bring Burundi’s debt management framework and practice up to par with international standards and strengthen the country’s capacity in debt management; activities undertaken in response to this request are financed under the DMF.

Benin has been able to balance the needs of infrastructure investment, social programs, and fiscal discipline with the support of World Bank guarantees. Benin reached out to the World Bank in 2019 for support in poverty-reducing policy reforms, financing social investments, and refinancing short-term domestic debt – all of which it needed to achieve on a $60 million IDA allocation. IDA offered to support Benin with $180 million equivalent of policy-based guarantees (PBGs), which cover commercial lenders against the risk of debt service default by sovereign governments. MUFG Bank of Japan provided a loan of $278 million and Credit Suisse $136 million, bringing the total raised to $414million; this was the first time in World Bank history that PBGs were leveraged to support commercial loans to a sovereign in Africa. Benin used the first €260 million to replace their short-term domestic debt with external commercial financing at longer maturity (12 years) and a much lower interest rate, achieving a savings of around 0.5 percent of GDP in present value terms over the life of the loan. Since this was a policy-based guarantee, the government also carried out significant poverty-reducing reforms, for example by providing more equitable access to education and health services. This approach was made possible by the incentive that IDA provided. In 2019, only 25 percent of the amount of the guarantee would count towards the annual country allocation. Since then, the policy incentive has been removed, and the amount of a guarantee counts 100 percent towards the annual allocation.

Burkina Faso Achieves Full Disclosure

Among the 74 IDA countries, only Burkina Faso has ever met the “full disclosure” rating for every single one of the nine categories on the World Bank’s Debt Transparency Heat Map – a remarkable achievement considering that the country has been classified as fragile and conflict-affected since late 2020 and has been fiscally squeezed by the COVID-19 crisis and has an internally displaced population of almost 2 million. Between 2015 and 2020, the government’s gross financing needs tripled, followed by an increase in borrowing from expensive domestic and regional capital markets to close the gap.

Burkina Faso partnered with the DMF to improve debt transparency under a broader World Bank DPO. The partners designed a roadmap of reforms for 2021, with step-by-step instructions to publish Statistical Debt Bulletins in line with international sound practices. The country’s borrowing costs have since gradually decreased for all debt instruments, the maturity of bonds has been extended from five to ten years to mitigate liquidity risks, and the country produces high-quality debt bulletins on time. As of June 2022, Burkina Faso’s access to the regional capital markets remains strong, and its funding costs, particularly for shorter-term borrowing, are among the lowest in the region.

A feature of the DPO was the close collaboration between the government and the DMF, which working largely remotely helped Burkina Faso build the debt management office's capacity for debt reporting. “The DMF experts virtually trained officers of the debt office, analyzed collegially with them data captured in the debt recording systems, and made recommendations for enhanced debt reporting,” says Daniel Pajank, Senior Economist for Burkina Faso at the World Bank.

In Togo, in 2022, the World Bank carried out a Debt Management Performance Assessment (DeMPA) aimed at evaluating the debt management practices implemented by the government in the previous 12 years. As a result, the minimum requirements of 75 percent of indicators were met compared to those achieved at 30 percent in the 2010 DeMPA, an important improvement. Nonetheless, there are still some areas to be enhanced, including fiscal risk analysis and introduction of external audit of debt management operations.

In Angola, the World Bank supported the reduction of interest rate risks on 98 percent of their International Bank for Reconstruction and Development (IBRD) outstanding debt amount and helped create up to $270 million in potential savings on the estimated interest repayment. After receiving training from the World Bank on financial risk management and after analyzing market projections for inflation, the country requested interest rate conversions for most of its disbursed IBRD loans, benefitting from the embedded conversion option of the IBRD Flexible Loan (IFL).

Countries in unsustainable debt situations undergoing a comprehensive debt restructuring receive targeted assistance to quickly improve the quality and scope of their debt recording and reporting, with the support of the DMF and the Government Debt and Risk Management Program (GDRM). In January 2021, the World Bank, together with the IMF, supported Somalia in improving its legal framework for debt management operations, its debt recording practices, and its debt publication. As a result, Somalia resumed the publication of detailed quarterly debt bulletins that tracked the amount of debt relief that Somalia is receiving under the Heavily Indebted Poor Countries Initiative. Following its announcement to restructure its external debt under the G20’s Common Framework in December 2022, the government of Ghana, with the support of the GDRM, reviewed its debt reporting practices with the aim of improving the scope of external and domestic debt reporting.


Countries in Africa with approved PPA in FY23 by priorities areas (as a % of total Africa Countries)

Unlocking the Development Potential of Public Debt in Sub-Saharan Africa

PPA approved by priority Area in FY23

Unlocking the Development Potential of Public Debt in Sub-Saharan Africa

Unlocking the Development Potential of Public Debt in Sub-Saharan Africa

Unlocking the Development Potential of Public Debt in Sub-Saharan Africa
Source: Debt Sustainability Enhancement Program

Debt Sustainability Analysis (DSA) rating as of May 2023 (Numbers of countries in AFE and AFW)*

Unlocking the Development Potential of Public Debt in Sub-Saharan Africa


A Network of Expertise

The World Bank works closely with the IMF in implementing a comprehensive approach to reduce debt risks - the Multipronged Approach (MPA) for Addressing Emerging Debt Vulnerabilities. The MPA strengthens debt transparency by working with borrowing countries and creditors to produce better public sector debt data available; supports capacity development in public debt management; provides suitable tools to analyze debt developments and risks; and adapts surveillance and lending policies to address debt risks and resolve debt crises. The IMF is also a partner in the revised Debt Sustainability Framework (DSF) for low-income countries. In addition, the Bank has been a leading contributor to the G-20’s efforts to promote sustainable financing - among other things, by developing proposals for the G-20 on how to improve the recording, monitoring, and reporting of debt and debt transparency. In all partnerships, but particularly among institutions involved in the management and relief of public debt, information sharing is critical; one of the key features of the SDFP is that it facilitates outreach to development partners for sharing information on debt.


Envisioning a New Approach

As debt management initiatives have matured, the international community has focused on strengthening the links between debt and poverty-reduction efforts. However, challenges remain to ensuring that debt burdens do not return to unsustainable levels. Beyond these initiatives, long-term debt sustainability requires efforts by borrowers, lenders, and donors to promote prudent borrowing, suitably concessional finance, sustained economic growth, diversified exports, and greater access to markets in developed countries. Debt sustainability is one of the global cross-border challenges prioritized in the World Bank’s Evolution Roadmap; rising levels of government debt form a key constraint on government deployment of domestic resources across the developing world. In the case of sovereign debt financing, issues of debt sustainability need to be managed proactively; one solution could be establishing a fund to channel donor resources to pay debt service on behalf of clients for a period of time to create fiscal space to respond to loss and damage from a crisis. The Bank is also reviewing options for climate resilient debt clauses and exploring structures to free up IBRD capital by refinancing SOE debt through the use of MIGA guarantees and reinsurance.