There are 9 ways that debt and deficit spending hurt African societies very badly

Systemic debt and deficit spending are part of the way the economy works today. In classical economics, markets lead and governments follow, but in the current economic model, which is based on Keynesian theory, the roles are switched. Like other statist economic theories, Keynesian economics doesn't trust (free) markets. This makes the state, which is by nature a bureaucratic and forceful institution, the captain of economic and social life.

African countries became "independent" nation-states in a time when economics were focused on the state and money was based on debt. So, African politicians opted for state-led economic growth (and maintain this approach to date). But after fifty years of using this method, Africa's economy is in a very bad place. Still, Africa's leaders are taking on dangerously high levels of debt to stick with the failed state-led model of development. This is a sure way to make things worse.

As has been talked about elsewhere, high inflation, high debt, and high taxes are like three barrels of a gun that are killing African economies. This article looks more closely at the second part of this harmful weapon: government debt.

Africa's Detrimental Debt Buildup

Many African governments keep making the same mistake of taking on too much debt. This is true even though this method has never been used to turn a poor country into a wealthy one anywhere in history. But politicians today seem to think that this time is different and that debt-driven spending will finally bring about the long-awaited and much-discussed economic growth in Africa.

On the other hand, you could say that African politicians know that taking on too much debt is unsustainable and bad, but they don't care because the money gives short-term relief that mostly helps the few (i.e., themselves and their associates). At the same time, many people have to deal with the bad results, such as higher taxes, unemployment, and stress, among other problems.

In its latest Regional Economic Outlook for sub-Saharan Africa, the International Monetary Fund (IMF) warned that the pandemic has made most African countries' financial situations worse, "pushing public debt to its highest level since the turn of the century." Africa's debt problems came before the war in Ukraine and the covid-19 crisis. This is obvious, but it's still worth pointing out.

Business Insider Africa made a list of the 20 African countries with the most debt compared to their gross domestic product (GDP). Here are the ten countries with the most debt:

1. Eritrea, 175.1 percent debt-to-GDP ratio
2. Cabo Verde, 160.7 percent debt-to-GDP ratio
3. Mozambique, 133.6 percent debt-to-GDP ratio
4. Angola, 103.7 percent debt-to-GDP ratio
5. Mauritius, 101 percent debt-to-GDP ratio
6. Zambia, 101 percent debt-to-GDP ratio
7. Republic of the Congo (Congo-Brazzaville), 85.4 percent debt-to-GDP ratio
8. Ghana, 83.5 percent debt-to-GDP ratio
9. The Gambia, 82.3 percent debt-to-GDP ratio
10. Seychelles, 81.9 percent

In North Africa, things aren't that different. The amount of debt has also been going up, with Egypt leading the way with a debt-to-GDP ratio of more than 90% and Tunisia coming in second with a ratio of 87.5%. Also, it is hard not to notice that many African countries are on the World Bank's list of poor countries with a lot of debt.

Africa is building up a lot of debt right now, which could be a sign of a coming economic tsunami. This is strange because it should be clear by now that systemic debt and spending by the government won't make African societies free and wealthy. So, why do politicians keep pushing for this bad model even though living costs are going up a lot, food security is getting worse across the continent, and the economy as a whole is getting worse?

In short, self-interest, but of course it's dressed up in language about the public good. Politicians everywhere, not just in Africa, tend to put their own interests and agendas first, so they tend to favor policies that help them the most. Whether it comes from debt, higher taxes, or printing money, government spending is very good for politicians and their friends. It gives the government more power and control over the lives of the people. It also helps big businesses that have been around for a long time.

In his article "A Time for Reckoning," economist Antony Davies pointed out:

Politicians discovered that they could win elections by paying off voters with other people's money. And so modern elections have become contests in which politicians vie with each other to offer "free" stuff to their constituents. "Free" phones, housing, healthcare, and education are free only to the recipients. Politicians simply force others to pay the bill.

Ultimately Africa's politicians undermine their economies and the continent's economic development by insisting on systemic debt and the state-led development approach.

A Destructive Model, Indeed

It is worth reiterating in more detail the nine ways in which debt-fueled government spending cripples African economies and makes poverty worse:

1. Debt-driven government spending enables politicians to insist on the state-led development approach, which has patently failed to generate economic prosperity.
2. By perpetuating state-led economic development, systemic debt also perpetuates the tyranny, dependency, poverty, corruption, and deindustrialization that come with it. (As an example, in the 1960s and 1970s, Africa fed herself and was a net food exporter. Today's Africa is almost entirely dependent on imports to feed herself.) By making poverty worse and sustaining authoritarian regimes, systemic debt cements economic repression and hence further delays the promarket and free trade reforms (such as the African Continental Free Trade Area) that Africa urgently needs to truly develop and be able to weather looming global economic storms.
3. Because it makes poverty worse, sustains dictatorial governments (a hallmark of postcolonial Africa), cements economic repression, and delays reform, systemic debt is a mechanism of oppression, injustice, and human rights violations.
4. Debt repayments further cripple already crippled economies by diverting increasingly significant portions of government revenue to debt servicing. (Worse still, African countries pay much higher interest rates [5 to 16 percent] on their Eurobonds than developed countries, which, thanks to their central banks' artificially ultralow interest rates, tend to pay near zero interest on their debt.)
5. The more the government gets into debt to deficit spend, the more unsustainable and harmful the arrangement becomes, and the more revenue the state will need to collect to service increasing debt levels. This means a more oppressive tax burden in the future. And high taxes are one of the main impediments to economic development. Less development means more poverty, which means more human suffering and more poverty-related deaths.
6. Like government spending everywhere, African governments' spending tends to be mired in corruption, cronyism, embezzlement, rent seeking, overbilling, and wastefulness. There are numerous examples, but consider the case of Kenya's infamous "railroad to nowhere" or how cash from Chinese loans was siphoned in the Democratic Republic of Congo. Furthermore, this system tends to attract and breed unscrupulous politicians who stay in office by making fairy-tale electoral promises (i.e., free this, free that) on the back of debt-fueled government spending, as well as special interest groups and other economic opportunists seeking to get rich on government spending, favors, and privileges. All of which leads to further debt to keep the spending binge going.
7. Systemic debt also exacerbates income and wealth disparities, as ruling elites and their associates (e.g., large businesses and other interest groups) benefit first and more from such money injections through various schemes. As George Ayittey noted, "The richest persons in Africa are heads of state, governors, and ministers. So every 'educated' African who wants to be rich—and there is nothing wrong with wanting to be rich—heads straight into government or politics."
8. Moreover, systemic debt leads to a situation where people, their children, and even the unborn will have to be taxed to pay for today's largely wasteful and counterproductive government spending. Such is the morally bankrupt and insidiously ruinous nature of this arrangement.
9. On top of all that, add the fact that systemic debt is used as an instrument to trap African countries in poverty and vassalage, primarily by the West but nowadays by others too.

In Closing

If the current mix of economic policies keeps going on for a long time, some African countries could be sleepingwalking toward a stagflationary crisis like Sri Lanka's or some other type of economic ruin. In fact, by insisting on debt-fueled spending and state-led development in times of crisis, even though the economy is in a very bad place right now, Africa's governments hurt their economies even more, keep their countries dependent on aid, keep their people poor, and weaken the economy's foundations, making their economies even more vulnerable to shocks from outside.

=========