Africa’s increasing debt level is becoming more and more a topical problem.
There is, however, a split view as to whether the increasing rates of debt are a true danger or an alarm fueled by myths and misinformation.
The continent’s average public debt grew from 29.1 per cent in 2013 to 45 per cent of GDP at the end of 2017.
Globally, the average debt rate of developed countries is around 266 per cent, while the average debt level of emerging markets is around 168 per cent.
Nineteen nations on the African mainland are above the 60% limit set by the African Monetary Cooperation Programme.
As a consequence, labels such as ‘ sinking in debt ‘ and ‘ debt ridden ‘ have become prevalent in relation to Africa.
Some specialists claim that debt- related thresholds and objectives only serve to increase alarm and are often irrelevant to particular countries ‘ social financial context.
Rather than looking at thresholds, the argument is that stakeholders should look at debt repayment ability.
Dr. Donald Kaberuka, SouthBridge’s chairman and former African Development Bank chairman, stated that the continent’s issues and fears are misplaced.
Rising debt, he said, is not unique to Africa.
With nations around the globe having ambitious growth predictions some needing heavy investment, debt is one of the most feasible avenues for funding aspirations.
For example, the Sustainable Development Goals are among global development goals that require heavy investment.
The incremental funding needs of SDGs are estimated at between $614 billion and $638 billion per year, while incremental expenditure needs are estimated at $1.2 trillion per year for low-income countries and reduced middle-income nations.
Kaberuka said elements such as the share of GDP income that goes into debt payment, which presently stands at about 12 percent, are of interest.
The 12 percent share of GDP income allocated to debt repayment is comparable to the 1998 figure, which either represents low repayment capacity or low income generation capability.
“There should be efforts to ensure that countries have improved revenue generation capacities in order to be in a better position to pay back debts,” he said.
The former boss of the AfDB observed that nations continue to lose income through tax incentives.
Kaberuka also argued against the view that debt was a poor thing, stating that the main issue should likely be its management and administration.
African nations that have exceeded the 60% limit are all mainly dependent on petroleum and gas, reflecting difficulties in the super-cycle of global goods.
However, Vera Songwe, UN Economic Commission for Africa’s Executive Secretary, advised that if not contained increasing debt could push vulnerable people back into poverty.
“High debt levels and consequent unstable macro economies could unravel development gains. Debt levels in more than half the African countries (30 countries) have risen precariously beyond the IMF recommended 40 per cent ceiling debt to GDP ratio for developing and emerging economies,” she said.
She observed that the amount of nations with debt ratios of more than 75% of GDP has more than increased from 3 nations in 2010 to 11 nations in 2018.
She said that if not resolved, increasing debt rates are likely to lead to reduced government investment ability, elevated future taxes, and the government’s failure to spend on development spending in the future.
Africa and China debt
China has often been quoted as being liable for debt ‘ burdening ‘ Africa.
Statistics, however, indicate that the Asian country is not the largest lender to African nations. It is the Paris Club.
The Paris Club is an unofficial group of formal creditors trying to discover viable and coordinated alternatives to debtor countries ‘ payment issues. The 22 nations, all of them Western, do not include China.
Among African nations in heavy debt trouble, China has loaned them only 15 percent of the sums they owe.
Share best practices not alarm
Patrick Njoroge, the governor of the Kenyan central bank, said that, unlike the alarming declaration on debt rates, more attention should be given to exchanging best case scenarios and examples of debt.
He said that models such as Rwanda could serve a good deal to share perspectives on perfect models.
The latest 14th World Bank Rwanda Economic Update observed that Rwanda is one of only four nations with low danger of debt distress in sub-Saharan Africa.
The Bank rates the danger of distress for nations, which is 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, Rwanda’s current value debt to GDP reaches around 32.9 percent as of March this year and is below the critical EAC limit of 50 percent.
At the end of 2018, the share of concessional loans in the complete debt inventory was 63 percent.
Both the World Bank and the IMF observed that Rwanda still has space to borrow more to finance development initiatives as latest investments have shown a strong return on investment.