The Debt Trap: How Loans Became the New Chains

The Debt Trap

In June 2024, Kenya's youth took to the streets.

They called themselves Gen Z. They used TikTok and X to organize. They translated complicated financial legislation into local languages. They made memes about taxes on bread and diapers. And when police opened fire outside Parliament, killing at least 23 of them, they didn't stop.

Their target was Finance Bill 2024 — a package of tax increases that would raise the cost of everything from cooking oil to mobile money transfers. But their anger ran deeper than any single bill. On their protest signs, they wrote: "Kenya is not IMF's lab rat."

They understood what many still don't: the debt trap is the new colonialism.

The Architecture of Control

After World War II, the victorious powers created a new international financial system at Bretton Woods. The International Monetary Fund would stabilize global currencies. The World Bank would finance development. Both would be headquartered in Washington, D.C.

From the beginning, these institutions were designed to serve the interests of their largest shareholders. The United States holds 16.74% of IMF voting rights — enough to veto any major decision, since 85% approval is required for key changes. Add Germany, Japan, France, and the UK, and five countries control the institution.

The least powerful voting bloc? A group of African countries led by Gabon, collectively holding 1.55% of votes.

When African countries gained independence in the 1960s, they inherited colonial economies — designed to export raw materials, not to develop. They needed capital to build infrastructure, schools, hospitals. The new international lenders were happy to provide it.

Then came the 1970s oil shocks. Commodity prices collapsed. Interest rates spiked. Suddenly, the loans that seemed manageable became impossible to service.

By 1980, African countries were drowning in debt. Between 1980 and 1990, Sub-Saharan Africa's total debt rose from $57 billion to $174 billion. Countries that couldn't pay turned to the only lenders who would help: the IMF and World Bank.

Help came with conditions.

Structural Adjustment: The First Wave

The conditions were called Structural Adjustment Programs — SAPs. They were based on the "Washington Consensus": a set of policies that included cutting government spending, privatizing state enterprises, removing trade barriers, devaluing currencies, and eliminating subsidies.

Between 1980 and 1989, 36 Sub-Saharan African countries initiated 241 adjustment programs. Eleven countries implemented ten or more programs.

The theory was simple: free markets would generate growth, growth would enable debt repayment, and everyone would benefit. The reality was different.

Privatization meant selling off state enterprises — often the most profitable ones — to foreign buyers at fire-sale prices. The new owners extracted profits; the governments lost revenue.

Trade liberalization meant removing protections for local industries. African manufacturers, unable to compete with subsidized imports from wealthy countries, went bankrupt. Ghana's textile industry was destroyed by cheap Chinese imports. Farmers across the continent were undercut by subsidized European and American agricultural products.

Currency devaluation was supposed to make exports cheaper and boost trade. Instead, it made everything imported more expensive — including the machinery and technology African countries needed to develop. And since many African countries were encouraged to specialize in the same commodities (cocoa, coffee, cotton), they flooded global markets and drove prices down.

Spending cuts targeted what the IMF called "unproductive" expenditure. That meant health care. Education. Food subsidies. The things that kept poor people alive.

The Lost Decades

The results were catastrophic.

Between 1980 and 1994, Africa's per capita GDP declined from around $4,500 to below $4,200. Incomes didn't recover until 2001. That's not a recession — that's a generation lost to poverty.

Studies show that structural adjustment was associated with elevated child and maternal mortality rates, higher levels of poverty, and deteriorating human development outcomes. In some cases, the crisis was so severe that it affected people's physical stature: Tanzanians born in the 1980s were around a centimeter shorter than those born a decade earlier — a sign of extreme nutritional stress.

While Africans got poorer, debt payments flowed outward. Countries cut health spending to service loans. They cut education to service loans. They cut infrastructure maintenance to service loans. And still the debt grew.

The IMF and World Bank blamed African governments for "poor policies" and "incomplete program implementation." When adjustment failed, the solution was always more adjustment.

A 1996 IMF study of Senegal, after nearly two decades of the same policies, admitted: "While the policies pursued under these programs have contributed to a reduction in macroeconomic imbalances, economic growth has remained erratic and subdued." In other words: there had been no development.

But the debt was still there.

Debt Relief — With Strings Attached

By the late 1990s, the failure was undeniable. The Heavily Indebted Poor Countries (HIPC) Initiative was launched to provide debt relief — but only to countries that continued implementing structural adjustment.

The Multilateral Debt Relief Initiative followed in 2005, canceling debts owed to the IMF, World Bank, and African Development Fund. On paper, 36 countries received $125 billion in relief.

In practice, relief came slowly, conditionally, and incompletely. Countries had to spend years implementing "poverty reduction strategies" — which looked remarkably like the old structural adjustment programs — before qualifying.

And no sooner was the old debt cleared than the new debt began to accumulate.

The New Lenders

China entered African lending in force in the 2000s. By 2023, China accounted for 40% of Africa's bilateral debt — $62 billion — up from 11% in 2009. Almost half of African countries owed money to Beijing.

The China model was different from the IMF model. Instead of policy conditions, China offered "resource-backed loans" — infrastructure in exchange for minerals or oil. Instead of lectures about governance, China offered what it called "non-interference."

But the China model had its own problems.

The Sicomines deal in the DRC: $3 billion in infrastructure for $93 billion in mining rights. Kenya's Standard Gauge Railway: a Chinese-built rail line that struggles to generate enough revenue to cover its operating costs, let alone repay the loans. Angola: $18 billion in debt to China, 40% of the country's external obligations, with repayment tied to volatile oil prices.

When oil prices collapsed in 2016, Angola nearly defaulted. It's been restructuring debt ever since.

Chinese loans often carry higher interest rates than World Bank or IMF loans. They're less likely to be forgiven. The terms are frequently secret — kept confidential at China's insistence, making it impossible for citizens to know what their governments have committed them to.

As one analyst put it: "Debt is now costlier and harder to resolve."

The Current Crisis

Today, Africa faces its worst debt crisis in decades.

Nine African countries entered 2024 in debt distress. Another 15 were at high risk. More than half of low-income countries in Sub-Saharan Africa are either struggling to pay or about to be.

The numbers are staggering:

• Africa's total external debt reached $1.15 trillion by the end of 2023

• African countries will pay $163 billion just to service debts in 2024 — up from $61 billion in 2010

• African countries spent 16.7% of government revenue on interest payments alone in 2023 — the highest of any developing region

• More than 40% of African governments spend more on debt service than on healthcare

And the borrowing has gotten more expensive. Between 2020 and 2024, the average bond yield for African countries was 9.8% — compared to below 1% for Germany. This is the "Africa premium": the assumption that African countries are riskier, even though default rates in Africa are actually lower than in other regions.

Countries like Ethiopia, Ghana, and Zambia have defaulted. The G20's "Common Framework" for debt restructuring has proven slow and ineffective — only four African countries have applied, and none have fully completed the process.

Kenya: The Breaking Point

Kenya's debt spiral is a case study in how the system works.

Under former President Uhuru Kenyatta, Kenya went on a borrowing spree. Chinese loans built the Standard Gauge Railway from Nairobi to Mombasa. Eurobonds funded government operations. By 2024, Kenya's debt stood at $80 billion — 68% of GDP, well above the recommended 55% threshold.

Servicing that debt consumed 65% of annual government revenue.

When President William Ruto took office in 2022, he faced a choice: cut spending on citizens, or default on international creditors. He chose the citizens.

The 2023 Finance Act doubled VAT on fuel, introduced a housing levy, and raised income taxes. By 2024, Kenyans were suffocating. Then came Finance Bill 2024: taxes on bread, cooking oil, diapers, mobile money transfers — the basics of daily survival.

These measures weren't Ruto's idea. They were conditions of a $2.34 billion IMF loan issued in 2021. The Kenyan government had promised the IMF to hit revenue targets. The tax hikes were how they planned to do it.

Gen Z said no.

They organized through social media. They used AI tools to explain the bill's provisions. They leaked politicians' phone numbers and flooded them with messages. On June 25, 2024, they stormed Parliament.

Police shot them with live ammunition. At least 23 people died. Over 300 were injured. The Kenya Human Rights Commission recorded 22 abductions.

The protesters didn't stop. Their signs read: "Kenya is not IMF's lab rat." They called for protests at the World Bank and IMF offices. They demanded Ruto's resignation.

Ruto backed down. He withdrew the bill. Then he announced austerity measures to make up for the lost revenue — starting with cuts that would primarily affect ordinary Kenyans.

The IMF's communications director apologized for the "bloodshed" but insisted that "austerity measures and a change in policy by the Kenyan government towards debt were critical to Kenya's economic future."

Translation: the deaths were unfortunate, but the conditions stand.

The Debt-Austerity Death Spiral

This is how the trap works:

1. A country borrows to finance development (or to pay off previous debts)

2. When repayment becomes difficult, it turns to the IMF

3. The IMF provides loans with conditions: cut spending, raise taxes, privatize assets

4. Cuts to health, education, and subsidies hurt citizens while generating savings

5. Those savings go to debt service, not development

6. The economy stagnates or shrinks

7. Tax revenues fall, deficits grow, more borrowing is needed

8. Return to step 2

Ghana has been in IMF programs for 21 of the past 30 years. Senegal has sought IMF assistance over 20 times since 1979. These aren't temporary crises being resolved — they're permanent states of dependency.

Meanwhile, the debt service payments drain resources that could fund development. Africa spends nearly $90 billion annually servicing external debt — while receiving only $44 billion in climate finance, despite facing some of the world's worst climate impacts. The continent that contributed least to climate change pays the most to international creditors.

Who Profits?

Follow the money:

Commercial lenders have become increasingly important. Between 2020 and 2025, almost 40% of external public debt repayments from lower-income countries went to commercial lenders — banks and bondholders, many based in New York and London. They charge the highest interest rates.

China has committed over $472 billion through its policy banks since 2008, becoming the world's largest single creditor to the Global South. Chinese state enterprises often benefit from the infrastructure projects that loans finance.

The IMF and World Bank themselves profit from lending. Interest payments flow to these institutions, which are funded by wealthy countries. The system recycles money from poor countries to rich ones.

African elites often benefit from the borrowing, even as their citizens suffer from the repayment. Corruption and financial mismanagement are real problems — but the international lending system enables and sometimes encourages them. Loans are extended to governments with poor track records, then ordinary citizens are made to pay.

What Would Sovereignty Look Like?

Some are fighting back.

The African Union has called for reforms to the international financial architecture. African governments are demanding a greater voice at the IMF and World Bank. South Africa's G20 presidency in 2025 — the first African host — has pushed debt relief onto the agenda.

The proposed African Credit Rating Agency could challenge the Western agencies that assign African countries higher risk ratings — and thus higher borrowing costs — than the data justifies.

Some economists call for a new "debtors' club" — a united front of indebted nations negotiating collectively with creditors. Others advocate for outright repudiation of "odious debt" — loans taken by corrupt governments without benefit to citizens.

Thomas Sankara tried this in 1987. He called on African nations to collectively refuse to pay:

"Debt is a cleverly managed reconquest of Africa, aiming at subjugating its growth and development through foreign rules. Each one of us becomes the financial slave of those who had the opportunity to lend money to our states."

He was assassinated months later.

The Question

The debt trap is not an accident. It's a system.

It transfers wealth from poor countries to rich ones. It constrains policy choices, preventing governments from investing in their people. It creates permanent dependency, ensuring that African countries remain supplicants rather than partners in the global economy.

Breaking the trap would require more than debt relief. It would require restructuring the institutions that create debt in the first place. It would require African countries to have real power in decisions that affect them. It would require wealthy countries to accept that their prosperity has been built, in part, on extracting resources from others.

That's not reform. That's revolution.

Kenya's Gen Z understood this. They didn't just reject a finance bill. They rejected a system that values debt repayment over human life, that treats IMF conditions as more important than democratic consent, that kills protesters and calls it "unfortunate."

They wrote on their signs: "We are not your lab rats."

The question is whether the world is listening.