AFRODAD warns African countries of debt crisis
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By Matiisetso Mosala
The African Forum and Network on Debt and Development (AFRODAD) have reported that African countries are today borrowing above their earning potential–a situation compounded by the covid-19 pandemic-leading States into a debt crisis.
The AFRODAD is a Pan-African organisation committed to assisting the long-term development of the continent through its contribution to finding sustainable solutions to Africa’s challenges in debt, resource management and financial development.
While Lesotho is not categorised among countries in debt crisis, data by the International Monetary Fund (IMF) shows that Lesotho’s outstanding loans and purchases stood at $41.45 million (M605,387,612.50) by December 31st 2021, with a $68.9 million quota to the IMF.
Lesotho’s Acting Auditor General Monica Besetsa said the country’s debt closing balances stood at about $ 1.1 billion (M15, 7 billion) in the report of the auditor general for the year ended 31st March 2020.
Executive Director of AFRODAD Jason Braganza said they have been warning of a debt crisis in Africa, which was accelerated by the pandemic due to the economic order that has maintained its neo-liberal approach in privatising the delivery of public services and has pushed the agenda of debt-financing development.
He said the development of infrastructure in many African countries comes at a cost, meaning that governments are borrowing a lot of money to finance infrastructures.
In Lesotho, ongoing construction of a road network connecting a World heritage Site-the Sehlabathebe National Park-was sourced from the Exim Bank of China with some of the M1.3 billion loan conditions raising questions of negligence on the manner in which the country’s former Prime Minister rushed officials into signing amid outstanding issues
Braganza said this during a capacity-building workshop held in Nairobi, Kenya last week where AFRODAD engaged journalists from 20 different African countries in consolidated efforts to draw prioritisation of public debt management and hold power holders accountable for any decisions that do not prioritise people.
He indicated that it is necessary to scale up capacity to connect national, regional, continental and global aspects of public debt, their interconnectivity, and their ripple effects on economies and mostly, on citizens.
Economist Dr Enock Nyorekwa from Uganda sharing experiences on public debt dynamics in Africa explained that debt is not necessarily negative as it can leverage economic prosperity. However, he noted that public debt arises when the government spends beyond their revenue; that is domestic revenue, indicating further that any government deficit increases the size of the public debt.
“Lack of fiscal disciplines such as cuts in tax rates without offsetting reductions in expenditure or a lack of control over increased spending also contribute to deficits- which the government has to finance somehow” Dr Nyurokoa stated.
While borrowing from the domestic markets happens, he said it was more expensive at a 10 percent rate and even higher if it’s longer-term, which pushes governments to borrow from external foreign markets through concessional loans.
Dr Nyurokoa said “concessional borrowing previously had friendlier terms, it had a longer-term grace period of 50 years and the interest rates were near zero. But they also had significant conditionality and negotiations took a long time”.
In recent years, however, he said there has been an emergence of non-concessional loans/borrowing which is shorter-term tenure, shorter grace period and near market value interest rates making them a lot costly.
He said the challenge with concessional borrowing in regards to debt is that debt becomes unbearable for many countries if they cannot meet their short-term needs and liquidity challenges emerge.
“Looking at the African countries, there is not one country that has a budget surplus, which would mean spending less than what is being collected from domestic revenue.”
Lesotho is not an exception to these challenges, reflected in the recently presented budget for the financial year 2022/2023 in which the Minister of Finance Thabo Sofonea noted the economy is faced with persistent deterioration of external position, with the current account balance continuing to be in deficit.
“Our estimates point that the current account balance widened in 2021/22 from a deficit of M688.9 million which is about 1.8 percent of GDP documented in 2020/21 to a deficit of M2 billion or 5.4 percent of GDP,” Sofonea stated.
Business Advisor, Chartered accountant and Chairman of the Lesotho Revenue Authority Board Robert Likhang talking to this publication said while Lesotho is in debt, it is not at a debt crisis point, adding that its crisis is more economic. He said what this means is that it still has opportunities to borrow more, but at higher interests rates due to existing debt and the volatile political state in the country.
“…because the crisis is economic, it means the opportunities presented by debt need to be put towards worthwhile investments and the money needs to be invested in sectors with the potential to generate revenue” Likhang maintained.
Likhang echoed Dr Enock’s sentiments in that debt leverages the economy and provides opportunities for investment.
Many African countries according to Dr Enock are low-income countries or are struggling with human development and are categorised by UNDP as low-human development countries- 34 of them, meaning there is a need for resource mobilization and investment. In terms of Infrastructure, he said Africa has the largest infrastructure gaps, without much tax effort.
“On one end they have huge development gaps and on the other low tax, efforts necessitating for borrowing, which is causing many countries’ debt levels to rise.
This has resulted in Africa’s additional investment needs for development being high over 500 billion-700 billion, yet the current revenue being collected is lower than the revenue earning potential for the region which stands at 43.2 billion USD and 457 billion.
The Covid-19 pandemic is said to have heightened the debt burden of many countries with the induced lockdowns that resulted in economic activity slump which revenue depends on. Lesotho received an M800 million ($49.1 million) emergency support from the International Monetary fund (IMF) to help meet the urgent balance of payments needs stemming from the COVID-19 pandemic.
This came at a time when Lesotho’s economic growth was subdued for a number of years leading to 2020, with government finances struggling to cope with the volatility of transfers from the Southern African Customs Union (SACU) that account for around half of the country’s total revenues.
Over and above that there were challenges to livelihoods and jobs, which Dr Nyorekwa says brought on a trilemma as spending was increased and revenue decreased, yet the risks of debts have also gone up and more debt needs to be repaid.
Challenges of many of the African countries call for Debt Service Suspension Initiatives; that is the suspension of debt service payments from the poorest countries. However, current initiatives do not oblige private creditors to consider debt relief.
The cartoon featured was designed by a creative cartoonist based in Uganda: Ivan Senyonjo.
