A sharp increase in lending to sub-Saharan African countries could leave many with crippling debts over the next decade, a new report by the Jubilee Debt Campaign has warned.

Based on analysis of International Monetary Fund (IMF) and World Bank data, the Jubilee Debt Campaign has found that two-thirds of impoverished countries face large increases in the share of government income spent on debt payments over the next ten years.

On average, current lending levels will lead to increases of between 85% and 250% in the share of income spent on debt payments, depending on whether economies grow rapidly or are impacted by economic shocks.

Even if high growth rates are achieved, a quarter of impoverished countries would still see the share of government income spent on debt payments increase rapidly, Jubilee said.

Sarah-Jayne Clifton, director of the Jubilee Debt Campaign, said: “There is a real risk that today’s lending boom is sowing the seeds of a new debt crisis in the developing world, threatening to reverse recent gains in the fight against poverty and inequality.”

For example, Ghana’s external debt payments are predicted by the IMF and World Bank to increase from 12% of government income today to 25% by 2023 even if the economy grows by 5.6% a year.

If the West African country suffers one economic shock, debt payments would increase to 37% of income.

If the country experiences lower economic growth over the next decade, payments would rise to 50% of government income.

“The shocking thing is that public bodies like the World Bank are leading the lending boom, not just reckless private lenders hunting for returns.”

“The $130bn of debt cancellation agreed in the 2000s has given countries in Africa and Latin America valuable breathing space to spend scarce government funds on fighting poverty and providing essential public services.
But the failure to reform the global debt system so that the root causes of debt crises are addressed means history may be set to repeat itself.”

According to the World Economic Forum’s 2014 Global Competitiveness report, Gambia is currently the African country with the highest level of debt as a proportion of GDP at 82.1%, followed by Malawi with 68.9%, Morocco at 61.9%, Ghana 60.1% and Zimbabwe at 54.7%. These figures are based on 2013 statistics.

Around 50% of current lending to sub-Saharan Africa is from multilateral institutions such as the IMF, World Bank and African Development Bank, with 33% from other governments such as China and 17% from the private sector.

Coinciding with the World Bank’s annual meeting in Washington, the anti-poverty campaigners accuse the international lender and other public bodies of “leading the lending boom” to poor countries without checking how repaying the debts will divert resources from cutting poverty.

Total lending to poor developing countries has increased by 60% from $11.4bn a year in 2009 to $18.5bn in 2013.

The report highlights that despite the rise in lending, government revenues are not rising to keep pace with repayments.

According to Imara Group, the above scenario painted by the report highlights their concerns over the boom in sovereign debt issues.

“If unmonitored, the rise in debt levels across SSA countries could lead to unmanageable debt repayment levels which would bring us full circle to the situation that prevailed before the “HIPC debt relief” initiative. However, if the debt acquired is used to invest into income generating projects and infrastructure, African countries might be able to withstand an increase in their current debt levels,” said Imara.