Hidden Debt and Its Economic Repercussions: Case Studies from Sub-Saharan Africa

Abstract:
The debt crisis is a major concern in sub-Saharan Africa, and its burden is a significant economic indicator that impacts development plans, investor assessments, and international institution ratings. However, there is a recognition that debt statistics are severely lacking. Accurately determining the level of public debt is difficult.

Hidden debt in the region exacerbates this concern. Many countries face economic instability due to undisclosed financial obligations. This phenomenon, often linked to a lack of transparency and good governance, poses serious risks to economies and regional stability. Hidden debt refers to financial obligations incurred by governments or state-owned entities that are not publicly disclosed or accurately reported in official statistics. This understates the true size of a country’s debt burden and its potential for financial instability. Consequently, stakeholders are less able to make informed decisions, leading to inefficient economic outcomes and increased risk of crises. This problem presents a multifaceted challenge in the region, especially as many of these countries suffer from high debt burdens and limited fiscal space. Its consequences are serious, including higher borrowing costs, reduced capacity for productive investment, and prolonged crisis resolution efforts.

This paper aims to define hidden debt, how to measure it, and examine its causes, size, impact, and costs in the region, presenting case studies and proposing solutions. It concludes that hidden debt is not a phenomenon unique to the countries of the region, although its causes vary. While there are no official statistics on its size, some studies estimate it at approximately half of the Chinese loans granted to countries in the region during the period 2000–2017. Its causes can be attributed to corruption and weak oversight, inaccurate disclosure during times of prosperity (as in the cases of Mozambique and Zambia), heavy borrowing to finance uncertain development plans (as in Senegal), or the large size of the informal sector (as in Nigeria).

All of this had disastrous economic repercussions, leading to the downfall of countries that had been models of economic growth and investment attraction. These countries fell into prolonged stagnation, experiencing a decline in investment flows, a loss of credibility, increased poverty, and a drop in credit ratings, which in turn led to higher borrowing costs. Furthermore, debt restructuring efforts faltered, and some of their assets were mortgaged, thus compromising their economic sovereignty.

Some countries, either individually, like Senegal, or with the assistance of the World Bank, as in the case of Mozambique, have enacted laws to strengthen oversight, disclosure, and whistleblower protection, which may yet yield results ■