Successful debt stabilization in sub-Saharan Africa requires strengthening public finances and institutions, alongside structural reforms and a stable macroeconomic environment. Despite high global uncertainty, tighter financial conditions, and rising borrowing costs, the region is addressing its debt vulnerabilities effectively. Public debt ratios have stabilized on average.
An analytical note in the IMF’s latest Regional Economic Outlook for sub-Saharan Africa uses new data to explore when and how often debt stabilization was achieved. The findings reveal that countries in the region have frequently managed to stabilize or reduce their debt ratios without restructuring. There have been over 60 episodes of debt reduction, defined as periods where the public debt-to-GDP ratio fell for two or more years. The probability of experiencing such an episode in any given year is one in four.
These episodes occurred even amid unfavorable external environments, such as after the commodity super cycle and during the COVID-19 pandemic. Many cases saw economically significant and persistent declines; most involved decreases of more than 10 percentage points of GDP, with almost half lasting four or more years. For instance, the Democratic Republic of Congo's debt ratio fell by 15 percentage points between 2010–23, while Cabo Verde's decreased by over 30 percentage points from 2021–23.
Debt reduction often reflects budgetary consolidation and real economic growth. In fragile states and low-income countries, growth is typically the main driver of successful reductions in debt.
Three conditions increase the likelihood of significant and persistent debt reduction: a solid domestic institutional framework with a supportive business environment; buoyant global growth; and low global borrowing costs. An IMF-supported arrangement also enhances success chances by providing international financial support. Sustained budget consolidation is crucial for long-term debt consolidation.
For example, Mauritius experienced a favorable domestic and external environment with solid growth and a stable currency leading to a nearly 20 percentage point reduction in its debt ratio during 2003–08.
Policymakers are advised that fiscal adjustment results in stronger reductions when complemented by pro-growth reforms and measures to strengthen institutional frameworks. These should include well-designed fiscal rules to prevent off-budget operations from undermining debt reduction efforts.
Countries aiming for sustainable debt reduction should focus on efficient taxation and spending while strengthening fiscal balances through broadening tax bases and removing inefficient exemptions.
International community support is critical for success through technical assistance or concessional financing. Fragile states face difficult trade-offs between short-term stabilization, long-term development needs, and socially acceptable reforms. External support can ease these challenges.
Athene Laws and Thibault Lemaire are economists, while Nikola Spatafora is a senior economist at the IMF’s African Department. This analysis is based on an IMF Regional Economic Outlook note authored by Athene Laws, Thibault Lemaire, Rachid Pafadnam, Nikola Spatafora, and Khushboo Khandelwal.