Africa, IMF and another debt crisis
A recent warning issued to African countries by the International Monetary Fund (IMF) on incipient debt crisis should not be dismissed by African leaders who would like to be perpetually dependent on the West and China for even sustainable development simple goals.
Public debt crises are not strange to the African continent. The period of the 1970s and early 1980s witnessed serious unmanageable debt situations for most African countries as well as in other poor developing countries across the world, with devastating effects on the economies of these countries. This traumatic experience was arrested with the help that came from the World Bank, the International Monetary Fund (IMF) and other multilateral, bilateral and commercial creditors which began the Heavily Indebted Poor Country (HIPC) initiative in 1996. The intervention was to ensure that the poorest countries in the world are not overwhelmed by unmanageable or unsustainable debt burdens.
Many countries in Africa including Benin Republic, Chad, Ethiopia, Senegal, Liberia, Uganda and 25 others are known to have benefitted from this initiative, coupled with the Multilateral Debt Relief Initiative (MDRI) put up by the IMF. These African countries received the full amount of debt-relief for which they were eligible through HIPC and the MDRI. About 36 countries across the globe benefitted, of which 30 are from Africa with the debt relief received rising to almost US$100 billion. In following up on these, the international community has focused on strengthening the link between debt relief and poverty reduction efforts. This is so because the release of funds that would have gone for debt service would be better utilised in addressing the incidences of ravaging poverty that has plagued the African countries for long.
The increase in the poverty incidence has been one of the negative effects on the macro-economy of unsustainable debt burden. This was more so given that most of these debts plaguing the African continent are largely foreign, with unfriendly repayment conditions.
Long after the HIPC era, which seemingly culminated at about 2003 when many of the benefitting African countries had reached the completion stage in the HIPC and MDRI process, it appears the continent is heading back into another era of debt crisis. In view of all these, the Managing Director of the IMF, Kristalina Georgieva, recently lamented that about 40 percent of African countries are in a debt crisis. According to her, there is a cause for worry as these countries steadily slide back into a serious debt crisis. This calls for worry because the continent is seemingly sliding back to the HIPC days. Who will bell the cat this time around? Are African countries turning out to be the economic sore of the global economic system where they will perpetually need help from the global community for survival?
According to the IMF 2018 Regional Economic Outlook for Africa, as at 2017, about 24 countries have surpassed the 55% debt-to-GDP ratio suggested by the IMF. This status underscores their vulnerability to economic shocks with the governments less capable of supporting the economy in the event of a recession. Countries hardest hit by the very high debt-to-GDP ratio include Cape Verde (124%), Republic of Congo (120%), Eritrea (130%), The Gambia (122%), Mozambique (100%), Sao Tome & Principe (82%), Togo (78%) and Zimbabwe (78%).
In as much as the causative factors to this ensuing debt crisis across the continent is well known, namely, the downturn in the international price for commodities, for which these African countries depend for their revenue and survival, there should be a conscious effort by the political leaders to embark on the necessary fiscal tightening to provide the necessary buffers for their national economies. This appears not to have been done. This lack of prudent economic management has been coupled by the increased frenzy by many of these countries to bridge the infrastructural deficit by excessively borrowing abroad to invest in infrastructure. This has largely put pressure on the quantum of public debt.
The other worrisome aspect of the increasing public debt is the growing incidence of domestic debt, which invariably crowds out the private sector in the debt market, which further incapacitates the private sector in making investments for domestic job creation and output growth.
In as much as borrowing on its part is good, if channelled to good investments that would yield returns for repayment, there is a need for the borrowing to be accompanied by good and well-articulated economic policies that would enhance better debt management. Besides, such a well-planned debt management will ensure that the borrowings do not find their way into recurrent expenditures that make the case of the country much worse off. When the debt service obligations of the borrowing become unbearable, then serious caution needs to be taken and considerations such as having a good debt service to revenue ratio, in preference to the debt-to-GDP ratio. This applies more appropriately to countries with fairly comfortable debt-to-GDP ratios such as Botswana, Democratic Republic of Congo, Nigeria and Eswatini (former Swaziland). They need to focus more on their capacity to repay, in view of the dwindling resources coming from primary products on which their economies depend.
In the main, African countries need to heed the warning of the IMF and ensure that the debts crises of the 1970s and 1980s are not resurrected. The ordinary African, across the continent has suffered enough over the years. The political leaders and the economic managers across the continent should make life worth living for their people and not plunge them into another preventable debt crisis.
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