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1. Chinese Loans to Sub-Saharan African countries: BalancingDevelopment and Dependency

Author:
Ahmed Salim Vessah
Publication Date:
01-2026
Content Type:
Working Paper
Institution:
The Nkafu Policy Institute
Abstract:
Over the past two decades, China has become sub-Saharan Africa’s (SSA) foremost tradingpartner and the region’s main bilateral creditor, profoundly reshaping its financial and geopoliticallandscape. Between 2000 and 2022, Chinese lenders extended over USD 170 billion in loans toAfrican countries , with major recipients (such as Angola, Ethiopia, Kenya, Nigeria, and Zambia)each receiving between USD 5 and 40 billion. Today, China accounts for around 20% of SSA’sbilateral external debt , underscoring its strategic importance in the continent’s developmenttrajectory. This Policy Brief argues that while Chinese loans are instrumental in addressing Africa’smassive infrastructure deficit, they concurrently heighten debt vulnerabilities and geopoliticaldependence. The attractiveness of Chinese financing is best understood in relation to Africa’spersistent structural needs. According to the African Development Bank (AfDB, 2024) , SSA facesan annual infrastructure financing gap of USD 100-150 billion, far exceeding the capacity ofdomestic revenues and traditional donors. Chinese loans therefore stand out due to their speed of approval focus on large-scale physical infrastructure, and limited policy conditionality’s comparedto Western lenders. For many African governments, this makes Chinese credit an appealing andpragmatic alternative for accelerating development.
Topic:
Debt, Development, Infrastructure, Trade, and Dependency
Political Geography:
Africa, China, and Asia

2. Navigating Debt Sustainability: An In-Depth Analysis of the IMF's Debt Sustainability Framework and Its Critique

Author:
Hasan Cömert, Güney Düzçay, and T. Sabri Öncü
Publication Date:
01-2025
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
This paper evaluates the IMF's debt sustainability analyses (DSAs), delving into their methodologies and implications and highlighting their problems. Since 2002, the DSAs have been the cornerstone of the IMF programs, providing the primary analytical tool to justify and determine the paths and targets specified. Although the DSAs evolved significantly over time, they have severe foundational problems. They rely heavily on strong assumptions and staff judgments, and thereby, they are primarily non-transparent. Secondly, there are significant issues regarding the conduct of DSAs. They have grown excessively complex, hindering consensus on components without necessarily improving assessment quality. Thirdly, the IMF makes very high-stakes decisions with low precision, relying on persistent over-optimism in growth forecasting and paving the way for tighter fiscal policies. Fourthly, the debt dynamics equation of DSAs is inconsistent with stock flow dynamics because it focuses heavily on the primary balance as the main driver. Fifthly, the IMF's framework does not pay enough attention to the underlying reasons for accumulating external debt in developing nations. It often treats external borrowing as a substitute for domestic debt without accounting for the asymmetric international financial architecture.
Topic:
Debt, Fiscal Policy, Sustainability, and IMF
Political Geography:
Global Focus

3. How to deal with the current debt crisis of developing countries?

Author:
Jürgen K. Zattler
Publication Date:
01-2025
Content Type:
Working Paper
Institution:
German Institute of Development and Sustainability (IDOS)
Abstract:
Many countries are still struggling with high and rising debt levels. The economic impact of the pandemic, as well as some longer-term structural factors, explain this situation. The key problem is the high level of debt service relative to government revenues, which makes it difficult to address growing development, social and climate challenges. As this is a particular problem for low-income countries (LICs) and lower-middle-income countries (LMICs), the focus should be on these countries. But even within this group, the situation is not uniform. A differentiated approach with different components is therefore needed, depending on countries’ individual situations and their own priorities and choices. There have been many contributions to this debate and proposals on how to address the current problems. This paper builds on some of those contributions presenting a practical and coherent approach to address the current debt crisis which focuses as far as possible on incentives for debtor countries and private creditors. Importantly, a distinction should be made between countries with high debt levels that are at risk of debt distress and those with liquidity problems. Therefore, debt sustainability assessments (DSAs) are needed to decide which countries (a) are not in debt distress, (b) have an insolvency problem, and (c) have a liquidity problem. The International Monetary Fund (IMF) and World Bank should be asked to classify all LICs and LMICs accordingly, based on updated DSAs, using a prudent approach with conservative projections. These DSAs must emphasise debt service indicators. For countries with liquidity problems, they need to identify those countries where the problem is of a longer-term nature, with a risk that the liquidity squeeze will turn into acute debt distress. All LICs and LMICs facing insolvency or liquidity problems should be offered a moratorium similar to the Debt Service Suspension Initiative (DSSI) to give them breathing space (of 2-3 years). The expectation is that this would help countries with liquidity problems to maintain basic social and economic services until market conditions improve or debt relief is implemented. In cases where debt service remains high after the moratorium expires, the country would be expected to request debt relief. Countries at risk of default would be expected to use the period of the moratorium to engage promptly in restructuring discussions and to prepare negotiations with creditors on a debt relief programme. The IMF would make its resources conditional on a suspension of debt service payments. The question is whether private creditors, including sovereign bondholders, should be required to participate. It is suggested that a distinction be made between two categories of countries. For countries at risk of insolvency, including those with longer-term liquidity problems, the moratorium should be conditional on private participation on comparable terms, as their creditworthiness is likely to be affected anyway. In contrast, with countries facing short-term liquidity problems the approach should be more flexible. While pressure on private creditors to join a standstill should be maximised, this should be complemented by strong incentives. Countries with unsustainable debt would request treatment under a reformed G20 Common Framework for Debt Treatment (CF) with the option of a more comprehensive debt relief arrangement (“CF+”), including the following enhanced or new components: • At the beginning of the process, countries would have to present a “Just Green Transition Programme” (JGTP), monitored by the IMF and the World Bank. • The CF+ would be accompanied by more comprehensive debt relief, thus creating more fiscal space to allow the country to finance transformational and social investments. Debt service after rescheduling should be based on DSAs, which pay greater attention to Sustainable Development Goal (SDG) investments and countries’ particular circumstances, leaving countries with substantial room to absorb shocks. The objective would be to limit the debt burden to external creditors as a share of revenue after rescheduling to around 10-15 per cent. • For those countries where a large part of the debt service will be due to multilateral creditors, the involvement of multilateral institutions should be considered. This should be the case for those multilateral creditors which are not willing, or able, to provide positive net flows at highly concessional terms. • The issuance of “Brady-like” bonds could be considered for specific country cases. The issuance of Brady-like bonds could be an incentive to maximise private creditor participation in exchanging old debt for new bonds with a significant discount or “haircut”.
Topic:
Debt, Development, Sustainability, and COVID-19
Political Geography:
Global Focus

4. Transfeminist Struggles Against Debt and Dispossession

Author:
Lucía Cavallero
Publication Date:
05-2025
Content Type:
Commentary and Analysis
Institution:
The North American Congress on Latin America (NACLA)
Abstract:
In Argentina, sexual dissidents mobilize transversal alliances to denounce indebtedness as a tool of capitalist displacement and violence.
Topic:
Debt, Capitalism, Displacement, Feminism, Violence, and Transgender
Political Geography:
Argentina and South America

5. Managing an Aging Society: Learning the Right Lessons from Japan

Author:
Jacob Funk Kirkegaard
Publication Date:
04-2025
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
As the world and especially other Asian and European economies enter the accelerated process of aging that Japan experienced from the mid-1990s onwards, learning the right policy lessons from Japan’s response is crucial. This paper argues that, overall, Japan has done relatively well by implementing a response that—even if often belatedly so—has mitigated some of the worst economic effects of aging. Japan has successfully raised domestic labor utilization and immigration levels, integrated its economy more with the rest of the world, and implemented a fiscal policy based on debt expansion that has seen debt costs decline. Other advanced Asian economies and China now face aging processes materially faster than Japan’s and will age simultaneously rather than alone like Japan. In addition, many advanced economies will age during a period of much slower global economic growth and less rather than more global trade and investment opening than what Japan faced from the mid-1990s. These less benign international economic and political circumstances mean that many advanced economies will likely not age with the same relative political and economic stability seen in Japan in the last 30 years. In time, this paper argues, “Japanification” will no longer mean a slowly developing economic disaster but will come to mean competent management of a very difficult economic transition.
Topic:
Debt, Demographics, Labor Issues, Immigration, Fiscal Policy, Aging, and Productivity
Political Geography:
Japan and Asia

6. Trapped in debt: China’s role in Laos’ economic crisis

Author:
Keith Barney, Roland Rajah, and Mariza Cooray
Publication Date:
04-2025
Content Type:
Commentary and Analysis
Institution:
Lowy Institute for International Policy
Abstract:
Laos is trapped in a severe debt crisis with no resolution in sight, threatening a decade of economic and social malaise. Recent global shocks were key triggers. Yet a crisis was almost inevitable, driven by poor planning and over-investment in the domestic energy sector, financed mostly by Chinese loans and exacerbated by broader fiscal and governance problems. Exiting the crisis will require China to provide substantial debt relief. However, the politics appear unfavourable, as neither side wants to admit failure and accept the consequences. Whether by design or neglect, China has created a debt trap in Laos. The crisis illustrates some of the most troubling pathologies of Chinese lending under the Belt and Road Initiative, and its unwillingness to provide sufficient debt relief, despite the clear-cut need.
Topic:
Debt, Belt and Road Initiative (BRI), Economic Crisis, and Energy Sector
Political Geography:
China, Asia, and Laos

7. Africa’s Faustian Bargain with the International Monetary Fund

Author:
Tricontinental: Institute for Social Research
Publication Date:
05-2025
Content Type:
Working Paper
Institution:
Tricontinental: Institute for Social Research
Abstract:
Decades of IMF interventions have locked African nations into cycles of debt, austerity, and economic dependency, stifling real development while reinforcing neocolonial control over the continent’s financial sovereignty.
Topic:
Debt, Development, International Monetary Fund, Austerity, Economic Dependence, Neocolonialism, and Financial Sovereignty
Political Geography:
Africa

8. An Analysis of Local Authority Debt and Arrears in Zambia

Author:
Mbewe Kalikeka, Sydney Sihubwa, Liana Chikwekwe, Jones Bowa, Muchimba Sarah Siamachoka, and Mwelwa Banda
Publication Date:
07-2025
Content Type:
Policy Brief
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
The research study examines the financial health of local authorities and identifies opportunities to foster revenue generation crucial for service delivery at local level. It explores the accumulation of debt and arears for all 116 local Authorities in Zambia, analysing key factors contributing to financial strain and evaluating policy interventions aimed at enhancing fiscal sustainability.
Topic:
Debt, Development, and Economics
Political Geography:
Africa and Zambia

9. China's Investment Pivot and Africa’s Industrial Prospects: Any Hope for African “Flying Geese”?

Author:
Charles Kenny
Publication Date:
06-2025
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
This paper examines the changing shape of Chinese investment in Africa, as it evolves from large scale infrastructure toward small scale manufacturing. It looks at the opportunity for the region in the context of a deepening manufacturing labor shortage in China; discusses barriers to that opportunity in both China and the Africa region; and the potential response of Western countries. It may be possible for at least some economies in Africa to benefit from a combination of Chinese investment in manufactured export and processed commodity industries and preferential access to economies including the US and China if geopolitics allow, but there are many reasons this could fail and the geopolitics are increasingly hostile. A backup plan for regional growth would be wise.
Topic:
Debt, Investment, Trade, Industry, and Development Policy
Political Geography:
Africa, China, and Asia

10. Trade Wars and Currency Wars – Lessons from History

Author:
Kris James Mitchener and Kirsten Wandschneider
Publication Date:
04-2025
Content Type:
Policy Brief
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Explaining President Trump’s “Liberation-day” tariffs on April 2nd, 2025, Stephen Miran, President Trump’s chairman of the council of economic advisors suggested that countries accept the U.S. tariffs without retaliation to come to a fair “burden sharing”(Miran: 2025). History shows that this assumption is wrong: using a detailed data set of bilateral trade flows constructed for the interwar period, this column shows that in fact the US faced substantial and widespread retaliation from trade partners in response to the U.S. Tariff Act of 1930 (i.e., the Smoot-Hawley Tariff). U.S. exports to retaliating countries fell by as much as 33%, with U.S. trade partners specifically targeting high-end, branded consumer products, such as U.S. autos. The drop in trade contributed to the Great Depression, which in turn triggered a large currency war: between 1929 and 1936, 70 countries devalued their currencies relative to gold. We show that trade was further reduced by more than 21% following devaluation. The currency war destroyed the trade-enhancing benefits of the global monetary standard, ending regime coordination and increasing trade costs. The 1930s are a potent reminder of what can happen when international policy coordination breaks down and countries go it alone when negotiating trade and exchange-rate policies.
Topic:
Debt, Economics, International Trade and Finance, Financial Crisis, Tariffs, Trade Wars, Trade Policy, and Donald Trump
Political Geography:
North America and United States of America

11. Beyond Zambia's 2020 Sovereign Debt Default

Author:
Zambia Institute for Policy Analysis & Research (ZIPAR)
Publication Date:
10-2025
Content Type:
Working Paper
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
This paper provides an analysis of Zambia’s 2020 debt default, its economic aftermath, and the policy and institutional responses that have shaped the country’s recovery. The study situates the default within a broader global and domestic context of rising debt vulnerabilities, fiscal indiscipline, and external shocks, highlighting how years of high borrowing, exchange rate volatility, and weak public financial management culminated in the crisis. Following the default, Zambia faced acute liquidity challenges, rising inflation, and restricted access to international capital markets. In response, the government pursued fiscal consolidation and institutional reforms under the IMF’s Extended Credit Facility (ECF), alongside a debt restructuring process guided by the G20 Common Framework. These measures sought to restore stability, rebuild confidence, and create space for inclusive growth while prioritising social spending and debt transparency. The study analyses the debt restructuring agreements with the Official Creditor Committee and Eurobond holders, noting the inclusion of state-contingent instruments, particularly the Value Recovery Instrument (VRI) embedded in the B-bond. This clause links Zambia’s future debt service obligations to improvements in its Composite Indicator (CI)—a metric combining the Country Policy and Institutional Assessment (CPIA), import coverage of reserves, and global growth trends. If Zambia’s CI exceeds a threshold of 2.69, the upside payment mechanism would be activated, triggering higher coupon rates and accelerated repayments. While this offers creditors a share in Zambia’s potential recovery, it also raises sustainability concerns, as it could increase the country’s debt service burden precisely when fiscal buffers remain fragile. It, however, does not provide any safeguards against adverse shocks or unexpected macroeconomic volatility, leaving the Government exposed to budgetary stress in the event of slower-than-expected growth or external disruptions. The paper, therefore, emphasises that durable debt sustainability depends on more than restructuring; it requires sustained reforms in domestic revenue mobilisation, prudent fiscal management, and institutional capacity building. It also calls for improvements to the Common Framework to enhance timeliness, predictability, and equitable burden-sharing among creditors, thereby reducing delays, improving fairness in repayment obligations, and providing more explicit guidance for future debt restructuring efforts.
Topic:
Debt, Economics, Sovereign Debt, Debt Restructuring, and Sovereign Default
Political Geography:
Africa and Zambia

12. The IMF’s Lebanon Framework: Balancing State Debt with Depositor Rights

Author:
Samara Azzi
Publication Date:
10-2025
Content Type:
Commentary and Analysis
Institution:
The Washington Institute for Near East Policy
Abstract:
So far, the proposals presented to Lebanon’s central bank risk prolonging rather than solving the country’s financial and economic woes. As Lebanon faces multiple challenges with economic and financial recovery from the country’s 2019 economic collapse, two interconnected issues remain particularly controversial: recovering the money of Lebanese who lost access to their bank deposits and holding those responsible for squandering their money accountable. Many insist on placing the blame on the Lebanese banking sector, thereby absolving current and former government officials of their role in swindling account holders. This is the narrative preferred by Hezbollah and its allies, who provided the political cover for the culture of corruption that eventually led to economic collapse. The new government is negotiating a reform package with the IMF, which presents a great opportunity to hold officials and politicians accountable. However, discussions do not seem to be moving in the right direction. Rather than focusing on accountability, the IMF, like other international lenders, appears to be focused primarily on minimizing the indebtedness of its prospective client—in this case, the Lebanese state—at the expense of depositors and the central bank.
Topic:
Debt, IMF, Banking, and Economic Crisis
Political Geography:
Middle East and Lebanon

13. Three risks that must be addressed for new European Union fiscal rules to succeed

Author:
Lucio Pench
Publication Date:
05-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The debate on the reform of the European Union’s fiscal rules, the Stability and Growth Pact, has largely focused on their design. This nearly exclusive focus has distracted attention from the equally, if not more, important aspects of implementation. The reform, completed in April 2024, left implementation unaddressed, or at least open to very different potential outcomes. In particular, the reform failed to clarify the interplay between EU countries’ medium-term fiscal structural plans (MTFSPs), which embody the new focus on debt sustainability, and the excessive deficit procedure (EDP), which remains the main enforcement tool under the rules. The need for clarification is urgent as several countries are set to enter EDPs for breaching the SGP’s 3 percent of GDP deficit threshold at the same time as their first MTFSPs are endorsed in autumn 2024. There is a risk that the adjustment paths prescribed by EDPs may be at least temporarily less demanding than the debt-sustainability requirements of the MTFSPs would normally imply. Even if consistency between EDPs and MTFSPs is ensured from the start, inconsistencies may arise over time and be resolved in a way that further postpones the necessary adjustment. The main risk is that the 3 percent of GDP deficit might be perceived as the only target that matters for countries that enter EDPs in 2024, as repeated revisions of the MTFSPs undermine the cogency of the debt sustainability requirements. This scenario is likely to materialise if the countries are allowed to exit their EDPs upon bringing their deficits to or below 3 percent of GDP, while being still far from the necessary correction of the debt trajectory. It is important to shape countries’ expectations on the implementation of the upcoming EDPs in a way that is conducive to the immediate internalisation of the debt sustainability constraint implied by the new rules, rather than allowing it to be viewed as a distant objective. This change in expectations could be achieved by clarifying that, even if a country has been placed in an EDP only for breach of the deficit criterion, it should also satisfy the debt criterion for the procedure to be abrogated.
Topic:
Debt, Reform, European Union, Fiscal Policy, and Sustainability
Political Geography:
Europe

14. The Greek Tragedy: Narratives and Imagined Futures in the Greek Sovereign Debt Crisis

Author:
Jens Beckert and Hans Lukas Richard Arndt
Publication Date:
04-2024
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
Between 2009 and 2015 Greece underwent a profound sovereign debt crisis that led to a serious political crisis in Europe and the restructuring of Greek debt. We argue that the prevalence of negative narratives about the future contributed to the changes in spreads of Greek bonds during the crisis. We support our argument by presenting results from text mining a corpus of 9,435 articles from the Financial Times and the Wall Street Journal. Based on sentiments and a machine learning model predicting future reference, we identify newspaper articles which generate negative and uncertain outlooks for the future in the expert discourse. We provide evidence from time series regression analysis showing that these negative imagined futures have explanatory power in models estimating spread development of Greek vs. German sovereign bonds. We suggest that these findings provide good evidence for the relevance of “imagined futures” for investors’ behavior, and give directions for an innovative contribution of sociology to understanding the microfoundations of financial crises.
Topic:
Debt, Financial Crisis, Financial Markets, Future, Sovereign Debt, Economic Sociology, Sentiment Analysis, and Valuation
Political Geography:
Europe and Greece

15. Triffin Reloaded: The Matrix of Contradictions around Global Quasi-State Money

Author:
Herman Mark Schwartz
Publication Date:
03-2024
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
What explains the US dollar’s role in the global economy and the tensions affecting its likely persistence? Most analyses start from Triffin’s dilemma, which accurately captured specific but partial tensions of a global monetary system based on essentially fixed exchange rates, gold backing for its core currency, and relatively robust capital controls. Triffin’s approach, and those based on it, struggles to explain the tensions in a system with floating exchange rates and fiat money, because Triffin and successors assume a commodity theory of money, a loanable funds model for credit creation, and the “triple coincidence” of monetary, legal, and economic zones. Approaching the question from different premises – chartalist money, endogenous credit creation, and interlocked global balance sheets – enables us to see four factors behind the antinomies or dilemmas that structure the dynamics and durability of US dollar centrality. Those four factors are adequate credit creation and thus global aggregate demand growth, current account deficits for the core, domestic legitimacy in major economies, and the dollar’s status as global quasi-state money.
Topic:
Debt, Money, Currency, Power, Financial Systems, Geoeconomics, and Reserves
Political Geography:
Global Focus and United States of America

16. The Invisible Leverage of the Top 1 Percent: Absentee Debtors and Their Hedge Funds

Author:
Stefano Sgambati
Publication Date:
01-2024
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
The existing literature on finance, debt and inequality depicts economic elites as a creditor class. According to a popular thesis, over the past four decades, the rich and ultra-rich households in the top 1 percent have experienced a saving glut (excess income), which they have invested in the debts of the poor and their governments. While it is undeniable that the rich have expanded their income share at the expenses of the poor, to refer to them as ‘creditors’ or ‘lenders’ is a misrepresentation of how they actually expand their wealth and income shares by financial means. For it conceals the fact that a great deal of their investments is leveraged, that is, carried out with borrowed money. This article shows that the debts generated by individuals and households in the top 1 percent easily surpass those of all other households and even exceed those of the most indebted states in the world. However, these debts are hard to estimate, and indeed they are not accounted for in statistics on household debt. This is because households in the top 1 percent do not borrow from banks, like normal households do, but they are instead absentee debtors who borrow through the hedge funds, private equity firms, personal investment trusts, and big banks of which they are dominant shareholders and ultimate beneficiaries. To gain an insight into their invisible leverage, the article looks at how much hedge funds borrow, and why their leverage matters.
Topic:
Debt, Political Economy, Inequality, Finance, Elites, Hedge Funds, and Leverage
Political Geography:
Global Focus

17. Mapping Fragility – Functions of Wealth and Social Classes in US Household Finance

Author:
Orsola Costantini and Carlo D'Ippoliti
Publication Date:
01-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Which households are more exposed to financial risk and to what extent is their debt systemically relevant? To provide an answer, we advance a new classification of the population, adapted from Fessler and Schürz (2017), based on the type of wealth families own and their sources of income. Then, we investigate data from eleven waves of the Survey of Consumer Finances (SCF), a triennial survey run by the U.S. Federal Reserve, to explore the association of different debt configurations and motives to get into debt with our class distinctions. Our new approach allows us to assess competing hypotheses about debt and financial vulnerability that have so far been analyzed separately in disconnected strands of literature. The results of our study reinforce and qualify the controversial hypothesis that relative poverty and inequality of income and access to services have been important factors explaining household indebtedness and its relationship with economic growth over time.
Topic:
Debt, Poverty, Inequality, Finance, Fragility, and Income Distribution
Political Geography:
North America and United States of America

18. Monetary Policy and Illiquidity

Author:
Jan Toporowski
Publication Date:
01-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The discussion of financial stability, and the role of monetary policy, is incoherent because there is very little agreement on what constitutes financial stability (and, by implication, instability) - exchange rate stability, asset price stability, absence of debt default. By implication, there is a gap between the claims of various authors to the general applicability of their respective analyses, and the actual applicability of their conclusions, let alone the usefulness of some of their policy recommendations. The paper argues that the key issue is the regulation of the liquidity of all financial markets, and not just that of the banking system, through the markets for government securities. The paper examines the sources of this liquidity in the financial portfolios of the private sector, and how that liquidity may be managed through the open market operations of central banks and the debt management operations of governments. An implication of this approach is yield curve control and the use of (government) debt management to control the liquidity of the markets. These elements of monetary policy have been neglected in theory and policy since the 1950s.
Topic:
Debt, Economics, Monetary Policy, Banking, and Liquidity
Political Geography:
Global Focus

19. Over-Indebtedness in Central Africa: Causes, Consequences, and Reform Strategies

Author:
Stephane Atangana
Publication Date:
10-2024
Content Type:
Working Paper
Institution:
The Nkafu Policy Institute
Abstract:
The CEMAC region is facing a concerning situation of over-indebtedness, exacerbated by external shocks and the volatility of commodity prices. This brief aims to analyze the structural and economic causes of over-indebtedness in CEMAC countries while formulating policy recommendations to improve debt management and enhance economic resilience. Targeted at policymakers, financial institutions, and regional bodies in Central Africa, this work relies on an econometric analysis using a mixed model (Multilevel Random Effects) based on data from 2010 to 2022. Key indicators include external debt and public debt service. The findings reveal a strong dependence on external debt, while fiscal reforms have a limited short-term impact. Structural reforms are essential to reduce debt vulnerabilities. Additionally, regional coordination is recommended to improve debt sustainability through institutional reforms, increased fiscal discipline, and economic diversification. However, this analysis does not account for potential global economic shocks that could affect the region.
Topic:
Debt, Economics, Reform, Diversification, and Financial Institutions
Political Geography:
Africa and Central Africa

20. The Profitability of Bank Capital and Household Debt

Author:
Hyun Woong Park
Publication Date:
08-2024
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
When does the banking sector profitability exceed the industrial sector profitability? In a benchmark, counterfactual scenario where banks lend to industrial firms only, the industrial profitability exceeds the bank profitability unless the banks’ financial intermediation technology is sufficiently advanced and the industrial sector’s leverage ratio is sufficiently high. In a more realistic scenario where the banks lend not only to the industrial firms and but also to households, which rely on bank loans for housing, vehicle, education, etc., the bank profitability exceeds the industrial profitability when the household sector’s total debt services are sufficiently large, regardless of the levels of the banks’ financial technology and the industrial sector’s leverage ratio. It suggests that the households’ debt and interest payments are potentially a important source of the bank profitability exceeding the industrial profitability. That is, the bank capital beat the industrial capital in terms of profitability by exploiting the households’ financial conditions that force them to rely on debt for their full reproduction. Lastly, this result is empirically confirmed through the ARDL cointegration analysis with the U.S. quarterly data for 1984–2020.
Topic:
Debt, Economy, Capital, and Banking
Political Geography:
Global Focus