Central banks and debt: emerging risks to the effectiveness of monetary policy in Africa?

Central banks and debt: emerging risks to the effectiveness of monetary policy in Africa?

Benedicte Vibe Christensen and Jochen Schanz

Introduction

The last two decades have seen some major changes in the size and composition of debt in African countries. The relief of part of the public sector's external liabilities since the early 2000s lowered the level of outstanding debt in low-income countries to sustainable levels. However, in the 2010s, debt levels started to rise again. Initially, the increase reflected favourable external financing conditions on the back of higher commodity prices and improved terms of trade. Yet, when the tide turned and commodity prices started to fall again in 2014, debt continued to rise in many countries as fiscal spending exceeded subsiding revenues. Thus, debt has become an issue of conce