Governors of the African Central Bank are meeting in Kigali starting today with planned topics on the increasing rates of African sovereign debt and its monetary policy consequences as well as economic stability.
Debt rates are becoming progressively worrying as the African continent’s government debt stood at 45% of GDP at the end of 2017 compared to 29.1% in 2013.
According to the 2017 Africa Pulse study by the World Bank, 11 out of 35 low-income nations in sub-Saharan Africa (31.4% of low-income nations) are categorized as high-risk debt distress.
John Rwangonbwa, the National Bank of Rwanda (BNR) Governor, informed reporters that while Africa is not in a debt crisis, there are increasing issues and trends that could become difficulties if they are not resolved.
“On a continental level, 45 per cent average for the African continent might be lower than the rest of the world. Globally developing countries stand at around 266 per cent while emerging markets is around 168 per cent,” he said.
There are concerns, however, for the African continent, such as its exponential increase over the years, as well as the nature of the loans. Previously a major part of it was concessional loans, but many African markets with a mix of commercial debt are currently starting in 2009.
A concessional loan is credit that is expanded on terms that are significantly more generous than business loans and generally from international development financiers such as the World Bank and the African Development Bank.
Loans with the option of further evaluation have low interest rates and lengthy grace periods.
On the other side, not only are business loans costly, they also have shorter payment terms.
“We are not yet in a debt crisis. Some countries may have faced challenges. When we sat in the last meeting, we decided that since there was a lot of noise around debt, we thought that it’s important to look at it from a central bank perspective. To look at the extent of the risk and what can be done,” he said.
Officials will also examine elements such as the reality that there are often cases of currency mismatch since most of the debt is external.
Loans are often for infrastructure projects and have no instant yields.
He said the talks will consider elements that African nations should get correct to prevent being at danger as well as aspects that might produce better conditions.
The recent 14th World Bank Rwanda Economic Update observed that Rwanda is one of just four nations with low danger of debt distress in sub-Saharan Africa.
The Bank rates the danger of distress for nations that are categorized as high, moderate, in distress, or low.
The bank said it included cautious borrowing, adequate credit management, and elevated financial growth among the characteristics that facilitated development.
According to the preliminary outcomes of the debt sustainability assessment from the Ministry of Finance and Economic Planning, the current value of Rwanda’s debt to GDP reaches around 32.9 percent as of March this year and is below the critical 50 percent EAC limit.
At the end of 2018, the share of concessional loans in the complete debt stock was 63%.
Both the World Bank and the IMF have observed that there is still space for Rwanda to borrow more to finance development initiatives as latest investments have shown a strong return on investment.
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