What Happens When Government Debt Service Eats Up a Large Share of Revenue - As Seen in Some African Governments
Santiago Bel
March 28, 2025
When​​​​​​ countries require funds for items like highways or education, it is their habit to take out loans. Although borrowing can be a growth driver if it is properly managed, it still has a downside; the borrowed money should be paid back with interest over a period of time. Countries that are forced to allocate big portions of their revenues for debt servicing on a yearly basis, eventually find themselves lacking the money for necessary programs. This situation, apart from causing budget problems, also increases the risk during a phase of economic decline. There are different countries in African that have proven themselves as cases of how quickly consequences can come.
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In the last ten years, a great number of African countries have piled up debts. They had to go beyond the local tax revenue to get the money for building the necessary infrastructure such as highways, upgrading health services, or supporting communities. The money was attracted from the foreign lenders among whom there were financial firms and private investors but the interest rates were fairly high since the borrowers were considered risky. When the repayments grow faster than the income, debt becomes unmanageable. It also means that a bigger proportion of the state budgets is allocated to debt servicing at the cost of education, clinics, or some other vital community projects.
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In Kenya and Ghana, the growing public debt is a result of continued borrowing to finance development when the economy was stagnant. This pattern of behavior is present in both countries. With nearly 50% of revenue being used solely for debt repayment, Kenya is left with extremely little money for the most basic needs such as schools and hospitals or even for road upgrading. On the other hand, Ghana is struggling with a heavy repayment burden; it has become so serious that they had to request emergency assistance from the IMF in order to avert a complete crisis.
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Deeply indebted countries are like dominoes; when they fall, one problem after another will appear. This happens because only very few cashes are left for the most necessary things after the bills have been paid. If there is an economic crisis such as a situation with a sharp drop in prices or a rise in loan rates, the affected country cannot use stimulus measures to solve the problem without creating new gaps in other areas. What is more, large repayment instalments have an effect on deceleration: the money devoted to interest means that schools or roads projects will have to wait for a longer period thus slowing down growth. Therefore, the debt might abruptly go out of control. So, if countries have to get more money just to be able to carry out the old loans or continue with their regular spending, the result will be that they will owe much more which will deepen their money troubles further.
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Throughout the continent of Africa, the ruling authorities are faced with very difficult tasks and the collection of adequate tax revenue often seems to be an uphill battle. The main reasons for that are the limited number of taxpayers, the widespread informal sector, and the fact that the revenue systems are still incomplete. Getting money to cover the expenses becomes difficult, debts are accumulating, and so are the urgent demands of the public. When the unexpected events such as higher loan rates or weaker trade with foreign countries come, what seemed to be a manageable borrowing gradually turns into a rapid spiral.
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Money is coming in different ways, and therefore, it is quite an intricate task to keep a proper record. Most African countries have loans in foreign currencies instead of their own. In the case where the local currency weakens, the costs of a dollar or euro debt, in terms of the local currency, will be much higher, which will affect the public budgets heavily. As a result, the areas like Zambia and even Nigeria are cutting down on money that is meant for such key local needs as education and roads and that is being used to pay the foreign debt. It is what happens when there is less space to expand the economy or help the people through community programs.
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The process of paying big debts sometimes leads to situations that are beyond monetary ones. When people see money being utilized for the repayment of loans instead of being used for schools or health care, trust in the authority may gradually diminish. The leaders find themselves in the middle; the demands from the public are not in line with the real budgets. Consequently, difficult decisions are forced upon them. On some occasions, a situation of being heavily indebted will result in a series of measures such as an increase in taxes, aid reduction, and general spending cuts. That is why most people become irritated.
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In order to be able to meet difficult loan payments, the African officials experimented with different strategies. They got a temporary relief from the short-term solutions by restructuring their loans, negotiating for lower interest rates, or extending their payment deadlines. At the same time, increasing state income through tax changes and the tightening of regulations causes the release of the money that can be used for other purposes. Some nations are also borrowing for good projects with the expectation that the returns will take care of the costs in the future.
Africa is a good example that debt in itself cannot solve the problems. It is just one of the instruments that have to be used properly. In the meantime, debt can be a catalyst for development, but if not followed up with heavy repayments, it can drain money and create a risky situation. Governments should plan their spending more carefully, and ensure that the projects they choose are effective, otherwise, they will face cash shortages in the future.
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The continent of Africa must control the debts in its countries if the desire for growth is to be maintained. If not, the money which is required for the development will be devoured by the loan repayments, and the ability to take action during crises will be diminished. The secret lies in lending cautiously, while at the same time working on tax collection and building more solid economic structures underneath.
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Eventually, the accumulation of excessive debt goes beyond the monetary aspect and requires the intervention of those in power as it affects economies, social systems, and even government stability. The whole continent of Africa has experienced the consequences of erratic lending not only endangering but also facilitating development. Nevertheless, the wise handling of it could potentially convert the debts into routes that lead to sustainable ​​​​​​benefits.