Unsustainable fiscal expansion, hidden debt, commodity-collateralised lending, and the broader dynamics by which governments accumulate obligations that eventually force painful adjustment — crowding out growth-promoting investment.
The recent wave of debt distress across sub-Saharan Africa makes this acutely relevant. Many countries entered the 2020s with debt levels that pre-empted their ability to respond to the COVID-19 shock, and are now in a prolonged adjustment that is squeezing development spending.
The over-borrowing threat frequently interacts with the presource curse: resource discoveries ease access to commercial borrowing, which governments use to advance spending commitments before revenues arrive.
How It Operates
Commodity-Collateralised Lending
Loans secured against future resource revenues, often at commercial rates and with opaque terms — creating "hidden debt" outside standard debt sustainability frameworks.
Off-Budget Liabilities
State-owned enterprise debts, government guarantees, PPP commitments, and arrears that are excluded from headline debt figures until they become fiscal crises.
Optimistic Revenue Forecasting
Fiscal plans built on central or optimistic commodity price and production scenarios that systematically overstate revenue and understate adjustment needs.
Debt Capacity Mispricing
Capital markets, repricing creditworthiness against anticipated resource revenues, lend at terms that later prove unsustainable when production underperforms.
Policy Implications
- → Require independent auditing and parliamentary approval for all sovereign borrowing, including guarantees
- → Apply debt sustainability analysis to the *pessimistic* commodity scenario, not the central scenario
- → Establish and enforce limits on off-budget liabilities and state-owned enterprise borrowing
- → Build debt transparency registries that are publicly accessible and regularly updated