African debt strategy: Focus on cost and currency over volume

Economist Cheikh Mbacké Sène argues that the debate regarding African debt should shift from the total volume of debt to the specific costs, currencies, and productive uses of those funds. While the debt-to-GDP ratio is a common metric, it often masks the true impact of financial obligations. For instance, debt contracted at low rates in local currency is less burdensome than smaller amounts of expensive debt denominated in foreign currencies.

In sub-Saharan Africa, debt servicing absorbed approximately 18.7% of public revenue in 2024, a figure three times higher than a decade ago. This significant budgetary drain limits public spending on long-term investments. Despite these challenges, the continent possesses approximately $1.1 trillion in institutional savings from pension funds and insurance companies, which currently flows largely into public debt rather than domestic productive assets.

Addressing the annual infrastructure financing gap, estimated between $68 billion and $108 billion, requires a more strategic approach to capital. Rather than focusing solely on reducing debt, the emphasis should be on improving the quality of borrowing to support industrialization, energy transition, and urbanization.