The Congo Republic’s debt restructuring deal with China shows the worrisome state of Africa’s economy

Back in the days, debt restructuring was something that African countries did with the International Monetary Fund and World Bank. This process allows African countries having financial issues to reduce, renegotiate or extend the maturity period of their debt so that they can continue with business as usual. However, that seems to be changing now as it seems African countries can now restructure their debts with China.

On Thursday, Congo Republic’s government noted that it had signed an agreement with Beijing in April to restructure its debt to China, which amounted to over $2 billion as of 2017. However, the government did not provide details of the terms of the restructuring, which it said had been agreed with the Export-Import Bank of China (EximBank) during a recent visit by a delegation from Brazzaville to China.

“This agreement, which is crucial for our country, is the result of two years of negotiations and promises interesting prospects for further negotiations with our technical financial partners particularly the IMF and the World Bank,” it said in a statement.

Debt restructuring by China is something that has been envisaged by a lot of economic experts due to the level of debt that Africa owes to China. According to data from the China Africa Research Initiative, from 2000 to 2017, the Chinese government, banks and contractors extended $143 billion in loans to African governments and their state-owned enterprises (SOEs). As of 2016, Chinese investment in Africa reached $38.4 billion in 2016. This is becoming a huge course for concern for Africans, IMF, World Bank and other multilateral organizations.

Just last month, the IMF urged Nigeria to curb its large appetite for Chinese loans as the country struggles with a €70 billion debt burden. That’s up from €62 billion in 2017, representing year-on-year growth of 12.25 per cent.

Prior to borrowing from China, the IMF and the African Development Bank were able to clear the debt owed to it by African countries through several initiatives. The 1996 Heavily Indebted Poor Countries (HIPC) Initiative, supplemented by the 2005 Multilateral Debt Relief Initiative, helped 35 sub-Saharan African countries cancel $100 billion in external debt.

Due to the phasing out of the Heavily Indebted Poor Countries (HIPC) Initiative and a decline in official development assistance, some countries seized the opportunity provided by their healthier balance sheets and continued economic growth to explore new sources of funding. China, leading the group of emerging economies called BRICS (Brazil, Russia, India, China and South Africa), has been investing heavily in infrastructure according to a UN magazine.

If care is not taken, Africa could see itself going back to the HIPC era. The continent could also see Beijing laying claim to some of their assets, as they are doing in Madagascar, Kenya, Zambia and Zimbabwe. African countries need to focus on proper debt management procedures, better lending decisions, and stringent policy to avoid wastage.