Public debt and illicit financial flows in Africa, and their impact on African households

Backgrounder

Introduction

This backgrounder explains public debt in sub-Saharan African (SSA) countries. It shows how the challenges of public debt are caused not only by governments borrowing money, but also by the structure and operations of the global economic system. The backgrounder also gives examples of how unsustainable levels of public debt hurt societies, households, and especially women, and how governments and citizens can take actions to improve the situation.

Africa’s economic and trade conditions have not changed much since colonial times, with African economies continuing to rely heavily on extractive industries* such as fossil fuels and mining. Africa has 17% of global population, but only 2.3% of global trade, down from a peak of 5% in the 1970s (1). Extractive industries are capital-intensive but create relatively few local jobs and are strongly dependent on foreign financing. Also, the unpredictability of global prices for extracted commodities means that African economies experience cycles of “boom and bust.”

African countries earn only a small fraction of the value produced by their extractive industries. For example, Africa earns $100 per ton of exported titanium sand, while countries outside of Africa earn $100,000 per ton from sales of finished titanium products (2). Ghana and Ivory Coast produce 70% of the world’s cocoa, but earn only $2 billion from the $100 billion chocolate industry (3).

Global trade and the global economy are based on economic policies that are part of neoliberalism*. Neoliberal policies embrace “free-market” economics that reduces the role of the state from one that provides public goods and services to one that primarily works to create a greater role for private capital.

Critics of neoliberalism argue that it focuses only on production and marketing, and ignores the social relations that make that production possible—for example, the household division of labour and women’s unpaid and mostly “invisible” and unrecognized work inside and outside the home. Neoliberal economics has assumed that men are the household “breadwinners” and that wages are the source of household income. This neglects the reality that poor and working-class households in SSA are typically involved in a variety of livelihoods, including small-scale production and subsistence agriculture, kinds of work that are primarily done by women for little or no wages (4).

 

History and drivers of debt in Africa

In the colonial era, European powers violently seized land and labour for settlers and plantations. After independence, African economies mostly remained suppliers of low-value raw materials to former colonial powers, rather than producing and trading high-value finished products. SSA’s external debt increased greatly between 1970 and 1999, especially with the steep increases in world interest rates in the 1970s and during the global recession of 1981–1982.

By the late 1970s, many African countries were borrowing considerable sums from external lenders to finance public spending. Countries had difficulty repaying these debts in part because the global economic system was designed to extract low-value raw resources to create private profit, and also because of illicit financial flows* (see section below) such as tax evasion. Low domestic savings in African countries and declining or volatile global commodity prices also made repayment of public debt difficult. By 2022, African countries’ debt had reached $1.8 trillion, a 183% increase since 2010 (5).

In the 1980s and 1990s, international lending institutions such as the World Bank and the International Monetary Fund (IMF) introduced Structural Adjustment Programs (SAPs)* that stipulated burdensome conditions for borrowing. SAPs required that, in order to receive loans to support development or pay down debts, African countries had to cut social spending. This meant less money for education, healthcare, agriculture, nutrition, housing, etc., and it meant privatizing public services.

In this way, pressured by unsustainable debt loads, the conditions of SAPs and other neoliberal policies, national governments in Africa have broken or been unable to honour the social contract to provide public services and safety nets for their citizens, thus increasing poverty.

The impacts of this public debt burden (which includes repaying interest on existing debts) are disproportionately borne by women because indebted governments have less money for public services such as health care and education. In 2018, 46 countries—mostly in SSA—spent more on servicing debt than healthcare (6). With reduced state spending on public services like early childhood education, elderly care, and health care, women have taken on the responsibility of caring for both the youngest and oldest members of households. And borrowed funds are rarely spent in ways that prioritize women’s rights.

SAPs and other neoliberal policies have worsened gender gaps in a variety of ways:

• More women than men have become unemployed.
• The wage differences between men and women have grown.
• Because governments have removed or reduced subsidies for social services, women’s unpaid workload has increased, with governments assuming that women will deal with the shortfall in access to such services.
• Adverse effects on girls’ health and education.
• Increases in domestic violence against women and women’s stress (7).

More recently, private lenders have become more active in Africa. Since the 1990s, microcredit has greatly expanded access to financial services in Africa, especially for low-income people. But the level of personal debt has increased, making poor households even more vulnerable. In 2024 in South Africa, workers spent 75% of their take-home pay on debt (8). New and convenient mobile applications are delivering cash to millions, but borrowing has become more reckless and predatory. In Kenya, for example, people who access needed loans through mobile applications struggle to repay them because the loans have an annualized* cost as high as 100% (9).

And while the global north continues to pursue trade policies that disadvantage African countries, African leaders also bear responsibility for the debt crisis. Corruption is widespread, and leaders often not only choose personal gain over national development, but continue to embrace the neoliberalist economic policies that have undermined African economies.

 

Illicit financial flows

Illicit financial flows (IFFs) deprive African governments of significant income, worsening debt crises. On average between 2013 and 2015, Africa lost an estimated $88.6 billion a year due to IFFs (10). Between 1980 and 2018, it’s estimated that US$1.3 trillion left Africa in illicit outflows (11). This is almost twice Africa’s current external debt (12) and almost two-thirds of SSA’s current GDP (13). Curbing capital flight and illicit financial flows could raise tax revenue in African countries by an estimated 3.9% of GDP, or $110 billion a year (14).

IFFs include criminal activities like corruption, smuggling, and theft; commercial practices such as misinvoicing* of trade shipments; various kinds of illegal tax practices; and using illegal markets. In 2014, Africa lost an estimated $9.6 billion to tax havens*, which is about 2.5% of total African tax revenue (11). Local authorities often lack the tools to challenge tax evasion by multinational enterprises.

The largest proportion of illicit capital flight from Africa is related to exporting extractive commodities (particularly high-value, low-weight commodities, and especially gold). In 2015, gold accounted for 77% of the estimated $40 billion in IFFs related to extractive commodities.

African countries with high volumes of IFFs spend 25% less than countries with low IFFs on health and 58% less on education (11). Since women and girls typically have poorer access to health and education already, they suffer most from cuts to these services. Curbing illicit capital flight in SSA could generate enough funds by 2030 to bankroll almost half of the $2.4 trillion needed to mitigate and adapt to climate change in Africa (10).

 

The impacts of debt

African countries’ debts have a host of negative impacts on the lives of women, men, and children, including the following:

Education

• A lack of funds for public services contributed to SSA having the widest gap between girls’ and boys’ education rates in both primary and secondary education in 2012 (15). In 2012, SSA had over half of the world’s out-of-school children at 33 million. In 2024, SSA continued to have the highest percentage of primary, lower secondary, and upper secondary school-aged children out of school (16).
• In Chad, debt repayment absorbed 85 per cent of national oil revenues in 2014, severely reducing spending on health and education. The resulting debt crisis left schools and hospitals non-functional, and, in 2018, resulted in workers’ strikes against austerity policies, which included a 50% pay cut (17).

Women

• Public debt and its servicing undermines African governments’ ability to promote women’s rights and meet national commitments on gender equality. Borrowed funds are rarely spent on women’s rights, partly because women are not included in decisions about public debt (18).
• When the health sector is unable to care for and treat the sick (in part because of debt), women typically provide care for free. But the women who provide this care pay by losing time for paid work, education, and leisure.
• Pressure on African countries to repay debts can result in governments increasing indirect taxes such as VAT (value added tax), a tax which disproportionately impacts women.

Women and children

• Servicing public debt can lead to increased food prices, poorer health care at increased cost, fewer job opportunities, and overcrowded schools with few resources and increased fees.
• A study found that Zimbabwe’s SAP program reduced a woman’s family to two meals a day. Her family could no longer afford meat, pay new school fees, or afford medicines at the clinic when the children were sick (19). Spending per person on primary health care and primary education in the country was reduced by a third between 1990 and 1995, associated with the SAP program.
• In Zambia, a SAP program was associated with a reduction in health care spending by 50% between 1990 and 1994, while spending on primary school-aged children in 1999 was lower than in the mid-1980s (19).
• In Tanzania, per capita spending on health and education was one-third lower in 1999 than in the mid-1980s. In addition to spending cuts, public services were privatized and user fees introduced. The greatest impact was on the poor, the least able to pay the fees (19).

Food security

• Privatization in SAA countries negatively impacts food security. State enterprises that provided subsidized seeds and fertilizer, and grain for out-of-season periods, have been liberalized or privatized as part of SAPs and other neoliberal programs (19).
• In Malawi, the elimination of subsidies for seeds and fertilizers contributed to a four-year food crisis between 2001 and 2005 (22). In 2007, a hunger crisis was averted only by a state-led program to subsidize maize, seeds, and fertilizers (19).
• In 2005, the prices received by Malian cotton farmers dropped by 20 per cent because of huge subsidies provided to cotton farmers in developed countries, causing an increase in poverty of an estimated 4.6 per cent across the country. Elimination of the state-supported organization that had helped farmers cope with high volatility in the global cotton sector paved the way for these impacts (19).
• In Kenya in 2023, new government austerity measures to meet the conditions of an IMF loan included a 1.5 per cent housing tax for employed people and numerous taxes on basic commodities like bread, sugar, and cooking oil that hit poor people the hardest (20).

 

Recommendations

At the global level

Reform the global financial system to:

• Create more favourable terms for borrowing, including maximizing the amount of debt servicing as a proportion of national budgets.
• Ensure that international development financial institutions support governments to restructure debts so that countries can invest in quality public services, and minimize the diversion of public funds to servicing debt.
• Restrict conditionalities* attached to loans and negotiate loan terms that protect state sovereignty and increase government’s capacity to reduce the impact of debt on women.
• Ensure that financing and debt restructuring by international financial institutions and national authorities:
  • Are guided by assessments of the sustainability of a country’s existing debt; and
  • Honour countries’ international human rights obligations and development commitments, including those on gender equality and women’s rights.
• Initiate a complete freeze on debt repayment for two years for all African countries.
• Ensure transparent lending and borrowing practices for both borrowers and lenders, including accuracy and reliability of data.
• Adopt a legally binding UN treaty that holds multinational corporations accountable for the impacts of their activities around the world.

National governments

• Prohibit private delivery of public services for health, education, and housing.
• Transform national economies away from resource extraction in order to reduce economic vulnerability, protect the environment, and address the climate crisis.
• Include criteria related to social and human development, equality, and justice for all when assessing the potential benefits of new loans, not just economic growth.
• Parliament should scrutinize and publicize all proposed government lending before project approval.
• To stop IFFs, ensure better coordination between financial intelligence units, customs agencies, law enforcement, and anti-corruption commissions.
• Take steps to reduce household debt, including better regulation of household loans. Prevent reckless and predatory borrowing to individuals, specify the maximum allowable loan relative to household income, and set interest rate ceilings.
• Invest in sustainable small-scale agriculture and agroecology to support subsistence farmers and reduce vulnerability to fluctuations in food prices.

Africa-wide

• Promote the understanding that cancelling African countries’ debt is about reparation (compensation for past injustices), not charity.
• Renegotiate trade agreements that aim to liberalize and privatize economies. Ensure that trade agreements go beyond strictly economic goals to include the social reproduction* which underlies all economic activity.

Recommendations on illicit financial flows

• Expose and curb illicit financial flows by promoting the “ABC” of tax reform: automatic exchange of information, beneficial ownership registration, and country-by-country reporting (21).
• Join Extractive Industry Transparency Initiatives and implement standards.
• Press government for more transparency, and act as whistleblowers on issues related to accountability and transparency in resource extraction.

 

Key definitions

Annualized percentage rate: The estimated yearly costs associated with a specific loan, including any fees and other costs associated with the transaction.

Conditionalities: Requirements set by international financial institutions like the International Monetary Fund and the World Bank, which countries must fulfill to qualify for loans, grants, or debt relief.

Extractive industries: The sector of the economy that involves extracting and processing natural resources from the Earth, including minerals, oil, gas, and other raw materials.

Illicit financial flows: Money illegally earned, transferred, or used illegally either at its origin or during its use or movement. A wider definition includes actions that are not strictly illegal (for example, strategies for avoiding tax), but which are undesirable because they result in reduced national tax revenues.

Misinvoicing: A way of moving money illegally across borders through the deliberate falsification of the value, volume, or quality of an international commercial transaction for goods or services. This typically involves exporters or importers submitting false shipment information on customs invoices.

Neoliberalism: An economic philosophy and set of economic strategies associated with belief in the dominance and efficacy of the “free” market, capitalism, privatization, diversion from government ownership, and changes in government spending to stimulate the private sector.

Public debt: Debt owed by governments and public authorities, or guaranteed by a central government. This debt can be owed to other governments, international institutions, companies and banks, or private individuals.

Public services: Public goods, including services, benefits, and rights, produced by governments rather than private businesses, NGOs, or individuals. Public goods are created through collective decisions and paid for by public funds. Delivery of public services is one of the key objectives of governance.

Social reproduction: The process by which a society reproduces itself from one generation to another and within generations. It includes how gender roles, power dynamics, and inequalities are perpetuated across generations.

Tax havens: Jurisdictions with low taxes and low residency requirements, and typically with secrecy laws that block information about their deposits from foreign tax authorities.

Unsustainable debt: When a country’s debt is unsustainable, the country does not have the ability to meet its debt obligations without compromising economic stability or essential public services.