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What Africa’s Debt Really Looks Like-Beyond the Headlines
Africa’s debt problem is often described using debt-to-GDP ratios. That metric alone is misleading. The deeper issue is how little revenue African governments collect relative to their obligations, and how expensive their debt has become.
Most African countries collect less than 18% of GDP in tax revenue, compared to over 30% in advanced economies. This means even moderate debt levels can become unsustainable quickly. When interest rates rise globally as they have in recent years, African governments face sharply higher refinancing costs without the revenue base to absorb them.
At the same time, the composition of debt has shifted:
- From concessional, long-term loans to commercial, shorter-term borrowing
- From multilateral lenders to Eurobonds and private creditors
- From fixed, predictable repayments to market-sensitive obligations
This shift matters because commercial debt:
- Demands higher interest rates
- Reacts immediately to global financial conditions
- Punishes perceived fiscal weakness
As a result, debt has become pro-cyclical, worsening downturns instead of smoothing them.
Africa’s rising debt is no longer an abstract macroeconomic concern. Across the continent, governments are grappling with the reality that debt is reshaping labour markets, driving inflation, and suppressing economic growth often simultaneously. The challenge is not borrowing, but the structure, cost, and management of debt, which now constrain development choices in multiple ways.
How Africa’s Debt Burden Is Affecting Jobs
1. Public Sector Employment and Investment Cuts
In many African countries, the state remains a major employer, especially in education, health, and civil service. Public jobs also anchor demand in local economies, supporting small businesses and suppliers. When debt servicing grows rapidly, governments face a bind: they must pay creditors or fund development programs and employment expansion. Often, they choose the former not because they want to, but because missed payments can further damage confidence and access to financing.
Data shows that in countries like Ghana, where debt restructuring has been ongoing, debt servicing demands have risen even as revenues have lagged. For example, as of 2025, Ghana’s debt service-to‑revenue ratio a measure of how much revenue goes to debt payments was estimated at about 43.5 %, indicating that nearly half of collected revenue went toward interest and principal repayments rather than development or wages.
What this means for jobs
Governments often freeze hiring to preserve cash, slowing or halting recruitment for teachers, health workers, and other civil servants.
Wage growth stagnates, reducing public sector attractiveness, especially for young graduates and skilled professionals.
Governments delay or cancel capital projects that would normally engage large workforces.
In Ghana, these dynamics contributed to lower growth in public employment opportunities, particularly for newer entrants to the labor market. Reduced fiscal flexibility also weakens local contractors and service providers who depend on steady government contracts.
2. Infrastructure Slowdowns and Job Losses
Infrastructure investment - in roads, energy, water, and transport is arguably one of the most effective job creation mechanisms in Africa. Projects create direct employment (construction, engineering) and indirect jobs (logistics, supply chains, hospitality around worksites).
Zambia’s experience illustrates the risk when debt obligations tighten fiscal space. The country has one of the highest debt‑to‑GDP ratios in Sub‑Saharan Africa, often above 110 %, and has been undergoing external debt restructuring after defaulting on some obligations. As debt servicing took precedence, infrastructure spending declined sharply.
Consequences included:
- Reduced jobs in construction and engineering
- Cutbacks for suppliers and subcontractors
- Lower economic activity in towns and communities near project sites
The effects also reverberate because poor infrastructure increases costs for all businesses, slowing investment, reducing competitiveness, and further weakening the job market in the medium term.
3. Crowding Out the Private Sector
Debt impacts employment even when governments try not to cut services. One important mechanism is “crowding out.” When governments borrow heavily particularly from domestic markets, they absorb available credit, pushing interest rates up. Banks then prefer lending to governments, perceived as lower risk, leaving fewer loans for private businesses.
In Kenya, for example, public debt was estimated at around 68 – 70 % of GDP in 2025, with a debt service-to‑revenue ratio above 62 %. With such significant revenue earmarked for bond and bill payments, domestic borrowing surged, raising interest rates and tightening credit for private firms.
Result for jobs:
Small and medium enterprises (SMEs) major sources of new jobs face higher borrowing costs.
Expansion plans that would create new jobs are delayed or shelved.
Informal sector work rises as formal hiring slows, reducing job security and productivity.
4. Investor Confidence and Employment
Debt levels also influence investor behavior. High debt servicing demands and recurrent refinancing risks make investors cautious. When confidence weakens, long‑term investments slow particularly in manufacturing, processing, and export‑oriented industries that could create formal jobs.
In Nigeria, while headline debt‑to‑GDP estimates have fluctuated due to statistical revisions, debt servicing pressure and fiscal constraints have limited public investment in industrial policies and infrastructure- both critical for job creation in value‑added sectors.
Debt and Inflation: Why the Cost of Living Keeps Rising
Unlike classic inflation driven by excess demand, much of the price pressures seen in African economies under debt stress are structurally tied to currency volatility, import dependence, and fiscal constraints.
1. Currency Depreciation and Imported Inflation
Many African economies rely on imported goods and raw materials. When debt obligations rise and investor confidence weakens, currencies come under downward pressure raising the local cost of imports.
Egypt, which holds one of Africa’s largest external debt stocks, saw repeated currency adjustments as part of credit and balance‑of‑payments stabilization efforts. According to Statista, Egypt’s outstanding credit with the IMF exceeded US $7.4 billion in mid‑2025 reflecting ongoing financing support linked to broader macroeconomic adjustments.
As imports become more expensive, the cost of food, fuel, and industrial inputs rises driving inflation across the economy.
2. Debt Servicing and Monetary Constraints
High debt servicing limits governments’ ability to cushion price shocks through subsidies or targeted support. Subsidy programmes, especially for fuel and food, become fiscally risky when debt payments consume large portions of revenue, forcing price increases that show up directly in consumer inflation.
This dynamic was evident in Tunisia, where constrained public finances limited subsidy coverage, contributing to higher food and fuel prices amid broader inflationary pressures.
3. Central Bank Financing and Price Pressure
Under fiscal stress, governments sometimes rely on domestic financing, increasing the money supply. While not extreme in most cases, this loosening of monetary discipline combined with currency depreciation sustains inflationary trends.
4. Household Impact
High inflation erodes real incomes. As households spend more on essentials, discretionary spending falls. Businesses then face weaker demand, slowing hiring or prompting layoffs. This creates a feedback loop linking inflation and unemployment.
Debt and Economic Growth: When Borrowing Slows Expansion
Debt becomes harmful when it no longer supports productive investment but instead crowds out development and weakens investor confidence.
1. Debt Overhang and Investment Decline
When investors expect future revenues to be used for debt repayment, they withhold investment. This “debt overhang” effect reduces capital inflows and stifles long‑term projects.
In Mozambique, undisclosed debt revelations eroded confidence, leading to reduced investment inflows even as the country sought to pursue large infrastructure projects.
2. Fiscal Austerity and Growth Slowdowns
Countries facing debt stress often adopt fiscal consolidation, cutting spending and raising taxes to stabilize finances. These measures are necessary, but they reduce aggregate demand and can slow growth in the short term.
Ghana and Zambia, for example, saw public spending contracts during restructuring periods, and growth remained subdued even as fiscal balances improved.
3. Growth Below Population Needs
Africa’s population growth sets a high bar for growth. Even moderate real GDP expansion may be insufficient to generate enough jobs.
In South Africa, with a debt‑to‑GDP ratio near the mid‑70 % range and a relatively high tax‑to‑GDP ratio compared to peers, growth has been consistently low failing to absorb the growing labor force. Unemployment remains high, structural bottlenecks persist, and investment slowdowns constrain future potential.
Conclusion: Africa’s Debt Crossroads
Africa’s debt challenge is no longer theoretical , it is visible in labor markets, inflation dynamics, and growth outcomes. While borrowing has financed essential infrastructure and development programmes, excessive, poorly structured, or costly debt has begun to constrain policymaking and economic performance.
The policy imperative is clear:
- Improve revenue mobilization to reduce reliance on debt.
- Prioritize productive investment that boosts exports and productivity.
- Strengthen debt transparency and management to enhance credibility.
- Support private sector job creation through targeted credit and incentives.
Debt can be a catalyst for growth but only when well‑managed and aligned with long‑term economic transformation.
