Africa’s next debt crisis: regulatory dilemmas and radical insights

ABSTRACT

A new African debt crisis appears imminent, which will have new features because several countries have recently introduced international sovereign bonds. Organisations such as the World Bank and the African Development Bank increasingly acknowledge the risk of such a crisis, but continue to prescribe debt-management strategies based on liberalisation and government spending cuts. Insights drawn from liberals favouring government regulation identify an alternative policy direction, while Marxist scholars raise serious concerns about the merits and implications of the bonds altogether. These alternative approaches have the potential to enrich inter-governmental policy discussions and potentially avert the looming new African debt crisis.

RÉSUMÉ

Une nouvelle crise de la dette africaine semble imminente, et aura une nouvelle facette puisque plusieurs pays ont introduit récemment des titres souverains internationaux. Des organisations comme la Banque mondiale et la Banque africaine de développement reconnaissent de plus en plus le risque d’une telle crise, mais continuent à recommander des stratégies de gestion de la dette basées sur la libéralisation et les coupes de dépenses publiques. Les idées tirées des libéraux favorisant une régulation gouvernementale proposent une direction politique alternative, alors que les intellectuels marxistes soulèvent finalement de sérieuses inquiétudes sur les mérites et les implications des titres souverains internationaux. Ces approches alternatives ont le potentiel d’enrichir les discussions politiques intergouvernementales et d’éviter éventuellement cette nouvelle crise imminente.

KEYWORDS:

• African economies
• debt
• Eurobonds
• financial capital
• economic regulation

MOTS-CLÉS:

• Économies africaines ; dette ; Eurobonds ; capital financier ; regulation économique

Acknowledgements

I want to thank Tyler Girard and Allyson Fradella, who provided valuable research assistance, and participants at International Studies Association panels in 2013, 2014 and 2015, the Canadian Association for African Studies, Atlantic Provinces Political Science Association and African Studies Association in 2015, where some of these ideas were developed, presented and debated. Special thanks are owed to Amentahru Wahlrab, Allyson Fradella and Tobias Orischnig, each of whom, through an insightful comment, helped redirect the article.

Disclosure statement

No potential conflict of interest was reported by the author.

Note on contributor

Carolyn Bassett is Associate Professor, Department of Political Science, and Director, International Development Studies, University of New Brunswick, Fredericton, New Brunswick, Canada.

Notes

1. The article focuses on sub-Saharan African debt issuers, excluding South Africa.

2. I will use the term ‘heterodox liberals’ to refer to the group of scholars who seek to significantly reform market economies to make them more responsive to social and ecological needs through extensive use of government regulation. The term ‘heterodox economists’ has been used to refer to a broad swathe of political economists from post-Keynesian to feminist to Marxist (see, for example, the Journal of Economic Literature classification codes) whose aspirations, assumptions and methodologies diverge significantly from those of the neo-classical or neoliberal-influenced mainstream of the economics profession. I address Marxist political economy insights separately from those of state regulation-minded liberals.

3. The ratings here are Standard & Poor’s and refer to first bond issues for various African sovereign bonds between 2007 and 2014. These letter ratings may be further qualified by terms such as ‘positive’ or ‘negative’.

4. Gross national income was calculated using the purchasing power parity method and the weighting was adjusted to account for population differentials. All data are drawn from World Bank World development reports (World Bank 2000–2014), and the databanks available on the World Bank website (worldbank.org).

5. At the time, the IMF ranked Ghana at higher risk of default than Zambia owing to rising government deficits, despite Zambia’s desperately worsening trade situation.