Will debt reforms unlock Africa’s job potential?

DAR ES SALAAM: THE World Bank International Monetary Fund (IMF) reforms to the Debt Sustainability Framework for Low-Income Countries offer African governments an opportunity to strengthen debt management while protecting resources needed for development and job creation.

The reforms come at a critical time, as governments balance the need to finance infrastructure, industrialisation, climate resilience, healthcare and education against the risk that debt repayments will divert funds from essential services and productive investment.

The World Bank approved the revised framework on September 15, 2026, following an IMF Executive Board review on September 9.

The institutions announced the decision on September 21, with implementation expected in the second half of 2027.

The framework’s last major review was in 2017. Since then, financing conditions have changed, with governments increasingly relying on domestic borrowing, commercial external loans, sovereign bonds and complex public-private partnerships.

One major reform is the introduction of a domestic debt module, recognising that borrowing in local currency is not automatically safe.

Heavy reliance on domestic banks, short-term securities requiring frequent refinancing and accumulated supplier arrears can expose governments to financial risks.

Large holdings of government debt can also link banks’ financial health closely to that of the sovereign. When confidence weakens, banks may incur losses or become reluctant to lend to businesses.

If government securities attract more financing than private enterprises, particularly small and medium-sized businesses, public borrowing can crowd out productive investment and employment creation.

The revised framework also seeks to account for the long-term fiscal effects of infrastructure, human capital and climate investments.

Productive projects, including railways, ports, electricity networks and irrigation schemes, can raise productivity, expand exports, create jobs and increase future tax revenue.

However, such investments should not automatically be treated as beneficial. Cost overruns, weak demand, procurement failures, delays and expensive maintenance can undermine expected returns while debt repayments remain due.

Independent project appraisals, realistic cost-benefit analysis and transparent estimates of fiscal and economic returns are therefore essential.

Other changes refine assessments of debt-carrying capacity, recalibrate thresholds and distinguish more clearly between debt stress and unsustainable debt.

The framework also strengthens forecasting and stress tests, clarifies the treatment of public liabilities and encourages better disclosure of risks associated with state owned enterprises.

The institutions’ review found that the existing framework generally identified debt distress before it escalated into full-blown crises, although gaps remained in forecasting, debt coverage and the assessment of changing financing risks.

The revised approach could help governments test how lower export prices, currency depreciation, higher interest rates and slower growth would affect their ability to service debt.

But warnings will have little value unless they influence budgets, borrowing plans, medium-term fiscal strategies and major public investment decisions.

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Forecasting is particularly important. Repeatedly overestimating tax revenue, exports or economic growth can lead governments to borrow against income that never materialises.

Commodity-dependent countries should test their finances against falling mineral and agricultural prices, while foreign-currency borrowers must consider depreciation and foreign-exchange availability.

Nevertheless, better assessment does not automatically provide debt relief or lower interest rates.

Countries may still face expensive borrowing, inadequate concessional financing and shortages of foreign exchange.

The framework’s reliability will also depend on accurate data. Unreported guarantees, public-enterprise borrowing, public-private partnership commitments and government arrears can conceal substantial fiscal risks.

Governments need consolidated registers of public debt and contingent liabilities, supported by detailed information on creditors, currencies, interest rates, maturities and repayment schedules.

Other challenges include politically biased forecasts and limited technical capacity.

Some low-income countries lack sufficient economists, statisticians, debt managers and climate specialists to independently assess assumptions and conduct stress tests.

Moreover, high-risk ratings could tighten lending conditions and discourage even carefully assessed development projects.

For Tanzania, the period before implementation begins in 2027 provides an opportunity to strengthen debt management and align borrowing with Dira 2050, the Fourth National Five-Year Development Plan (FYDP IV) and industrialisation priorities.

Such alignment must go beyond placing projects within national strategies.

Every major borrowing proposal should demonstrate how it will strengthen productive capacity, create employment, expand exports, increase government revenue or improve essential services, while explaining how the financing will be repaid.

Tanzania should also establish and regularly update an integrated fiscal-risk register covering central government debt, public corporations, guarantees, public-private partnerships, arrears and other significant contingent liabilities.

Meaningful disclosure to Parliament, auditors and citizens would strengthen accountability while protecting legitimate confidentiality and national security.

Domestic revenue mobilisation is equally important. Better tax administration, fewer unjustified exemptions, stronger compliance and a broader formal economy can provide more predictable resources for investment and debt servicing.

Before borrowing, the government should compare grants, concessional loans, commercial debt and private investment.

Competitive procurement, transparent contracts, independent audits and post-completion evaluations can help ensure that projects deliver their promised benefits. Domestic and external borrowing must also be assessed together.

Tanzania needs to monitor foreign-currency exposure, refinancing risks, interest rates, public enterprise liabilities and the effect of government securities on bank lending.

A deeper domestic bond market could reduce currency risks and extend maturities, provided it does not simply divert savings away from businesses.

Ultimately, the World Bank–IMF reforms can support sustainable development, but their success will depend on responsible borrowing, credible data, realistic forecasts, stronger institutions and productive investment.

For Tanzania and other African countries, debt reform will matter when better assessments lead to better decisions, creating jobs and growth without passing an unsustainable financial burden to future generations.