The governor of Portugal’s central bank warned today that financing flows to the PALOP will be limited to covering debt service in the coming years, with budgetary consolidation and structural reforms being mandatory.
“The high level of debt in African countries will mean that financing flows will be limited to covering debt service in the coming years”said Álvaro Santos Pereira, at the opening of the XXXV Meetings of Portuguese-speaking central banks.
“Debt service burdens are at historically high levels and budgetary space is reducing faster than in other developing economies, compounded by an environment of uncertainty, abrupt changes in global policies and a reduction in aid from the main donors”, added the former Economy Minister.
Therefore, he concluded, this scenario “will further limit access to financing in the region, flows will be limited to covering debt service in the coming years”, meaning that “they will have to carry out budgetary consolidation while carrying out structural reforms”.
For Álvaro Santos Pereira, this panorama of difficulties in accessing financing makes it “absolutely essential to work more in the area of debt, to put debt on a downward trajectory and avoid risks of over-indebtedness”.
In the report presented today on the Evolution of the Economies of Timor-Leste and the PALOP 2024-2025, the Banco de Portugal warns that “in the absence of improvements in financing conditions and an increase in financing flows to the region, several countries will tend to face difficulties in refinancing existing debt or in obtaining new resources under sustainable conditions, seeing current liquidity pressures transform into solvency crises”.
No document It is also warned that, “in the current international financial framework, the combination of restrictive financial conditions, exchange rate pressures and high financing costs threatens to fuel a vicious circle of debt, insufficient investment, low productivity and endemic poverty”.
In the ‘Pulsar de África’ report, released by the World Bank last week, economists wrote that the number of countries in debt distress rose from eight in 2024 to 23 this year, which represents around half of the countries in sub-Saharan Africa.
In the most recent report on Africa, published by the United Nations Economic Commission for Africa (UNECA), at the end of March, it was also stated that one of the region’s main problems was the high amount of public debt, which took away space for investment in infrastructure that allows economies to develop.
Public debt in Africa is expected to fall from 62.5% last year to 62.1% this year, after reaching 67.3% in 2023, but this fall is not enough to eliminate the debt crisis that many countries in the region are facing, says the UN.
“Despite the slight decline, debt levels are still high and are comparable to values recorded before debt relief initiatives in the mid-2000s”, reads the Economic Report on Africa (REA), released following the conference of African finance ministers, which took place in March in the capital of Ethiopia, Addis Ababa.
The costs of servicing the debt are expected to have reached US$163 billion, 12% more than in the previous year, says UNECA, highlighting that, although 2024 should have marked the year of highest payments, “the values will remain well above pre-covid-19 pandemic levels in the short and medium term”.