After a global campaign led by U2 frontman Bono and Bob Geldof, in 2005 Ghana and Zambia were cleared of foreign debt worth about $14 billion. Now, less than a decade later, the two nations are struggling to finance their budgets and are under pressure to seek emergency loans from the International Monetary Fund.
Government spending in Ghana and Zambia has been growing at what the IMF considers unsustainable levels. Both countries have had their debt ratings downgraded in the past year and their currencies were the worst performers in Africa against the US dollar to the end of June. Since having their debt wiped clean, both countries have racked up borrowing. As the funds flowed in, spending curbs weakened.
“Nobody would have expected such a rapid increase in debt,” said Bernard Anaba, a policy analyst at the Integrated Social Development Centre, an Accra-based research group that lobbied for debt relief as part of the Jubilee 2000 campaign. “The debt relief gave us breathing space but the campaign has been forgotten too soon.”
Jubilee 2000 ran a program called “Drop the Debt”, supported by musicians such as Bono and Geldof, to help persuade wealthier nations to cancel the outstanding loans of the world’s poorest nations so that funds could be spent on health and schooling. The campaign drew thousands of supporters at protests at Group of Eight summits in the early 2000s, culminating in the Live 8 music concerts in 2005, aimed at drawing global attention to poverty in Africa.
“There’s no question that Ghana and Zambia misbehaved badly during the boom years,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “They were among the naughtiest pupils in the class and they’re now suffering the consequences.”
Ghana’s debt levels are set to reach 61 per cent of gross domestic product by December as the budget deficit exceeds 10 per cent for a third consecutive year, according to Fitch Ratings. The debt ratio was 26 per cent in 2006, data from the IMF shows.
Concern about rising indebtedness is too often focused on the borrowers and not the lenders, said Tim Jones, a policy officer at the Jubilee Debt Campaign, a successor of Jubilee 2000.
“We are worried that there’s a new round of irresponsible lending,” he said. “This has been driven by a rise in aid money being used as loans rather than grants and by lax monetary policies in the US and Europe.”
While Ghana and Zambia recorded consistent high growth rates in excess of 5 per cent in the past four years, authorities have not done enough to curb public spending or diversify their sources of income from commodities. Zambia earns about 60 per cent of export revenue from copper, while gold makes up about half of proceeds in Ghana.
“Both countries are dependent on their respective mining sectors for a disproportionate amount of their tax revenue and the end of the commodity bull run hit tax revenues in both countries,” said Clare Allenson, an analyst at Eurasia Group in London.
In May, Ghana’s Finance Minister, Seth Terkper, said that the government had not ruled out seeking IMF assistance, though it is still assessing whether measures put in place to help narrow the fiscal gap have been effective.