Multilateral banks in blame games over debts
Nigeria owes $6b more to World Bank than AfDB
While the debt stock of Africa’s economies recorded a whopping 150 percent rise in the past 10 years, with new obligations in the pipe, two multilateral banks of global repute and major creditors, are own trading blame over who caused the alarming borrowings.
The World Bank President, David Malpass, apparently worried over the debt record that has not produced real development and unclear repayment strategy, listed some development institutions as facilitating the ugly trend by lack of due diligence. Among the Multilateral Development Banks berated by the World Bank chief include the African Development Bank (AfDB). But that appears not to go down well with Africa’s largest development institution.
Malpass’ observation touched on one of the fundamentals of banking- due diligence, alleging that AfDB, among others, have a tendency to lend too quickly and in the process, add to the continent’s debt problems.But the Abidjan-based lender has refuted the claims, saying its Africa Legal Support Facility (ALSF) helps countries to negotiate terms of their royalties and taxes to international companies, and terms of their non-concessional loans to some bilateral financiers.
According to the bank, the statement credited to the World Bank boss is inaccurate and not fact-based and impugns the integrity of AfDB, undermines its governance systems, and incorrectly insinuates that we operate under different standards from the World Bank.
“The very notion goes against the spirit of multilateralism and our collaborative work,” a statement from AfDB, accessed by The Guardian, noted. The claims it maintains a very high global standard of transparency, as in 2018 Publish What You Fund report, AfDB was ranked the fourth most transparent institution globally.
“We provide a strong governance programme for our regional member countries that focuses on public financial management, better and transparent natural resources management, sustainable and transparent debt management and domestic resource mobilisation.“We have spearheaded the issuance of local currency financing to several countries to mitigate the impacts of foreign exchange risks, while supporting countries to improve tax collection and tax administration, and leveraging pension funds and sovereign wealth funds to direct more monies into financing development programs, especially infrastructure,” the bank added.
AfDB also claimed it has been highly successful in negotiating terms of their royalties and taxes to international companies, and terms of their non-concessional loans to some bilateral financiers.But like the proverbial “kettle-pot spat”, AfDB presented facts and figures of both institutions’ lending for a balanced judgement.
“The World Bank, with a more substantial balance sheet, has significantly larger operations in Africa than the African Development Bank. The World Bank’s operations approval for Africa in the 2018 fiscal year amounted to $20.2 billion, compared to $10.1 billion by the African Development Bank.
“With regard to Nigeria and South Africa, the World Bank’s outstanding loans for the 2018 fiscal year to both countries stood at $8.3 billion and $2.4 billion, respectively.
“In contrast, the outstanding amounts for the African Development Bank Group to Nigeria and South Africa were $2.1 billion and $2billion, respectively, for the same fiscal year,” the bank said.
At the end of June 2019, total public debt in Nigeria amounted to $83.9 billion, 14.6 per cent higher than the year before. This represented 20.1 per cent of GDP, up from 17.5 per cent in 2018.Of the total public debt, domestic public debt amounted to $56.7 billion, while external public debt was $27.2 billion, representing 32.4 per cent of total public debt.
South Africa’s national government debt was estimated at 55.6 per cent of GDP in 2019, up from 52.7 per cent in 2018. South Africa raises most of its funding domestically, with external public debt accounting for only 6.3 per cent of the country’s GDP. Development banks continue to play critical roles in development efforts and in the aspirations of developing countries, most especially in Africa.
Indeed, given substantial financing needs on the African continent, the development assistance of the African Development Bank, the World Bank and other development partners remain vitally important, with increasing calls on them to do even more.From insider knowledge, the lending, policy, and advisory services of these development institutions in their respective regions are often coordinated and provide substantially better value-for-money to developing nations, compared to other sources of financing.
So far, AfDB’s AAA-rated status may not be mere formality, as it sources funding on highly competitive terms and pass on favourable terms to regional member countries. With regard to the need for better lending coordination and the maintenance of high standards of transparency, the African Development Bank coordinates lending activities, especially its public sector policy-based loans, closely with sister International Financial Institutions.
This process relies on the IMF and World Bank’s Debt Sustainability Analyses (DSA) to determine the composition of our financial assistance to low-income countries; and joint institutional approaches for addressing debt vulnerabilities in the African Development Fund (ADF) and International Development Association (IDA) countries.
“We are of the view that the World Bank could have explored other available platforms to discuss debt concerns among Multilateral Development Banks.“The general statement by the President of the World Bank Group insinuating that the African Development Bank contributes to Africa’s debt problem and that it has lower standards of lending is simply put: ‘misleading and inaccurate’”, the bank noted.