Burgeoning debt levels hammer growth prospects in SSA

In 2022, Nigeria’s debt service payments are projected to amount to around 93.0% of government revenues, while in South Africa and Kenya, public debt levels as a percentage of GDP are expected to hit the highest levels since our records began in 1999. Meanwhile, Ethiopia’s debt levels are also on the rise—after falling sharply at the turn of the century—leading the country to enter into Extended Credit and Fund Facility programs (EFF/ECF) with the IMF. 


Looking ahead, regional GDP growth is expected to moderate throughout 2022 after last year’s projected rebound. Household spending and fixed investment should benefit from fewer Covid-19 restrictions weighing on mobility and more positive business sentiment, respectively. However, constrained public spending, tighter monetary policy and normalizing foreign demand should lead to a slowdown in economic growth. Major downside risks stem from elevated debt service payments, political tensions and volatile weather conditions.    

Insights from Our Analyst Network Commenting on the fiscal outlook for Kenya, economists at HSBC noted: 

“Kenya’s fiscal policy remains a concern, with debt expected to stay at 70.0% of GDP. While there is a risk of higher government spending ahead of the August elections, we think implementation of revenue-enhancing measures, expenditure control and structural fiscal reforms, within the framework of the IMF program, should support prudent fiscal policy choices, budget consolidation and the broader macroeconomic outlook. The IMF disbursed another USD 258 million for budget support in mid-December following the second review of the EFF/ECF program. The government expects to table a supplementary budget in January 2022, and has committed to submitting a budget for FY 2022/2023 by the end of April. We see little change in the fiscal deficit in FY 2021/2022 (ending June), but see more scope for consolidation thereafter.”  

On the regional GDP outlook more broadly, Marta Casanovas, economist at FocusEconomics, noted:  

“Economic growth in the region will soften this year from 2021’s recovery—partly on a less favorable base of comparison. Despite this moderation, domestic demand should strengthen further as progress on the vaccine front continues and restrictions are lifted. Risks to the outlook remain, however, including pandemic-related uncertainty, regional tensions and debt repayments.” 

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