Business Daily
Date: 29.07.2015
Page 12
Article size: 351 cm2
ColumnCM: 78.0
AVE: 148200.0
Continent has a window of opportunity to avoid a new debt trap
African countries should seize the
and the World Bank — you will see very
"window of opportunity" provided few countries are currently at risk of
by a comprehensive debt relief pro­ debt distress, except for Chad and Sao
gramme offered by the World Bank Tome and Principe and the Central Af­
and the International Monetary rican Republic, which is in crisis.
Fund (IMF) to the world's poorest
into liquid assets or cash because
it was money that was owed. So,
does that mean there was no mon­
ey exchanged?
No. But the question is; before, when
you would raise your tax revenues, you
would spend most of it paying back your
debt service. Now, you can putthat money
to other use. So the question again is what
are countries doing?
The IMF has a report called Macroeco­
countries, Amadou Sy, Director of the
Do you believe the HIPC and its re­
latedMDRI debtreliefprogramme
ings Institution, told Africa Renewal's have been good for these African
Jocelyne Sambira.
countries?
The Heavily Indebted Poor Coun­ The debt relief really helped relieve
tries (HIPC) Initiative and the relat­ the debt burden of these countries nomic Developments in Low­Income De­
ed Multilateral Debt Relief Initiative and reduce the risk of debt distress. veloping Countries, which examines what
(MDRI) have relieved 36 countries of If you look at what African countries countries are doing, case by case, and it
$96 billion in debt. Thirty of these are doing, they are implementing an has looked at only six countries: Dj ibouti,
Africa Growth Institute at the Brook­
countries are in Africa. In this inter­
view, Mr Sy shares his thoughts on
what should be done to avoid a future
debt trap.
The two major debt relief pro­
grammes are reportedly coming
to an end. Can you confirm and if
so, how many countries in Africa
have benefited from these plans?
By the end of April 2015, Chad became
the 36 th country when it received $1.1
billion in debt relief through the World
Bank and the International Monetary
agenda for transformation.
So basically kick­starting the
Kenya, Mozambique, Ghana, Haiti and
Honduras.
engines of their economies — agri­
For example, IMF notes that in general,
culture, business, manufacture, in­ poverty­reducing social spending has not
dustry and also addressing a huge increased in these countries.
infrastructure gap, which according
And they also found that in some coun­
to a 2009 World Bank paper, puts the tries, like Ghana, budget overruns on cur­
infrastructure gap for Africa at about rent expenditure contributed to elevated
$93 billion per year. And that requires deficits. So in the case of Ghana, the wage
money because the gap is too large bill increased, the country also imported
for most countries to be filled just by more than it exported and is back on an
using government and private sector
IMF programme. It's less a question of
revenues. So, many African govern­ how elevated the debt­to­GDP ratio is. Of
ments are borrowing again. And — as course you have countries like Cape Verde,
Fund under the Heavily Indebted Poor you have seen — many countries are which now has 112 per cent of debt­to­GDP
Countries Initiative and the related issuing eurobonds again.
ratio from 65 per cent in 2009.
Multilateral Debt Relief Initiative.
Fifteen years ago, only South Af­
Basically, Cape Verde has been increas­
There are currently only three rica issued eurobonds but now you ing its debt. If you take other countries like
countries in Africa that have not yet have Kenya, Rwanda, Senegal, Cote Ghana, it has decreased its debt­to­GDP ra­
benefited from the debt relief, notably d'lvoire and others issuing them. Now tio from about 80percentin2003to30 per
Eritrea, Somalia and Sudan (they are the key question is what are they doing cent after the HIPC and MDRI debt relief.
classified as "pre­decision countries" with this money? Is there a risk that And now it is back to about 70 per cent.
which according to IMF means they we could go into debt distress again?
"face common challenges including Before debt relief, most government
preserving peace and stability, im­ revenues would go to service debt in­
proving governance and delivering stead of going to pay health, education
basic services").
As a result of this debt relief, the
median government debt­to­GDP ra­
tio in Africa fell drastically and it's now
below 40 per cent, which is reasonable
and for obvious reasons, because some
and investment expenditures. 1\vo key
questions: what are these govern­
ments doing with the money?
And are they managing their new
debt in an efficient, cost­effective way
that will not increase again the risk of
debt distress?
countries had debt relief.
Now, if you look at the models that
try to assess the risk of external debt
Ail economist explained to me
that debt relief did not translate
distress — like the one used by the IMF
A section of Mathare slums in Nairobi. The IMF notes that poverty­reducing social
spending has not increased in some African countries despite heavy borrowing.
Ipsos Kenya ­ Acorn House,97 James Gichuru Road ­ Lavington ­ Nairobi ­ Kenya