Africa: The Curse Of Cheap Money

AFRICA

The Curse of Cheap Money

Africa may face a debt crisis in 2018, thanks to a boom in lending to low- and lower-middle-income country governments following the global financial crisis of a decade ago.

Such lending quadrupled from $57 billion in 2007 to $260 billion by 2016, noted Kenya’s Daily Nation newspaper. The reason for the increase was quantitative easing and low interest rates in the most developed countries – which made lending to developing countries at higher interest rates more attractive.

But with interest rates now rising, those same poor countries are having trouble paying the money back.

Kenya’s debt now totals 32 percent of GDP, Uganda’s is 57 percent of GDP, Tanzania’s 63 percent, and Mozambique’s a whopping 299 percent, the paper said. At the low end, those numbers aren’t necessarily red flags – the US debt-to-GDP ratio was higher than 100 percent from 2012 to 2016. But a steady upward trend could hurt credit ratings and Mozambique was already unable to pay back its loans in January 2017, Deutsche Welle noted.