Thabiso Scotch Mufambi
Harare – The long-term solution to Africa’s debt problem lies in strengthening domestic resource mobilisation to avoid costly external borrowing, the African Forum and Network on Debt Development (AFRODAD) says.
According to the African Development Bank (AfDB), between 2000 and 2019, 18 African countries debuted on international capital markets and issued more than 125 Eurobond instruments valued at more than US$155 billion.
The bank says Africa’s top five creditors since 2015 are bondholders (27 percent of external debt by the end of 2019), China (13 percent), the World Bank-International Development Association (12 percent), AfDB (seven percent) and other multilateral lenders (seven percent).
Of the continent’s top-five bilateral creditors, China tops the list (13 percent of total debt), the United States (four percent), France (2.9 percent), Saudi Arabia (2.5 percent) and the United Kingdom (2.4 percent). Other big creditors include Germany, Japan, Kuwait, UAE, India and Italy.
AFRODAD senior policy analyst (debt management) Mr Tiri Mutazu told The Southern Times Business this week that African countries needed to strengthen their capacities to collect enough taxes while also leveraging natural resources, fighting corruption and stemming illicit financial outflows to improve domestic resource mobilisation.
“No country has developed using external resources. African countries need to strengthen their domestic resource mobilisation efforts and strategies so as to be able to finance their own development using their own resources,” he said.
On top of utilising domestic resources, Africa also needed a debt resolution mechanism that addresses the legality, legitimacy and sustainability of liabilities, he said.
“We need responsible borrowing and prudent debt management.” He added: “Countries already struggling with debt should demand fair debt restructuring mechanisms.”
Mr Mutazu said the lobby group would continue engaging African governments and proffer advice and policy recommendations to deal with the debt issue.
Commenting on the Debt Service Suspension Initiative (DSSI) of the G20, IMF and World Bank, Mutazu said this was not sustainable as “It only postpones the agony of bilateral debt servicing.”
He argued that the DSSI carried numerous pre-conditions which made it difficult for distressed countries to qualify.
In order to qualify for the DSSI, a country has to be up to date on debt payments to the IMF and World Bank, has to ask for the suspension (i.e. it will not be offered) and also needs to have asked the IMF for emergency loans, Mr Mutazu said.
Beneficiaries are also expected to disclose all public sector financial commitments involving debt and debt like instruments.
“Participating countries are expected to resume debt repayments when the moratorium elapses by end of 2021. It is even reckoned that countries participating in the initiative would experience a bigger debt repayment obligation post DSSI,” he said.
“The DSSI only covers a small percent of debt payments due in 2021 by all developing countries. Middle income countries are left out of this initiative when they are (also) fighting the pandemic.
“The DSSI (also) lacks the participation of private and multilateral lenders and money freed-up under the DSSI may effectively be used to repay private and multi-lateral debts and not to fund the response to the COVID-19 crisis.”
The DSSI proposes the suspension of debt repayments for 73 of the world’s low income countries for a period of six months until June 2021, but AFRODAD has counter proposed that the moratorium be extended to 24 months to June 2022.