By EA Trade Reporter and Agencies
The UN Conference on Trade and Development (UNCTAD) has warned African countries to reduce external borrowing to avoid debt crisis similar to what was witnessed two decades ago.
The UNCTAD Economic Development in Africa Report 2016 finds that Africa’s external debt ratios appear manageable, but warns that African Governments must take action to prevent rapid debt growth from becoming a crisis, as experienced in the late 1980s and 1990s.
“Borrowing can be an important part of improving the lives of African citizens,” UNCTAD Secretary-General Mukhisa Kituyi says.
“But we must find a balance between the present and the future, because debt is dangerous when unsustainable.”
According to the report, at least $600 billion will be needed each year to achieve the Sustainable Development Goals in Africa, subtitled Debt Dynamics and Development Finance in Africa.
It says this amount equates to roughly one third of countries’ gross national income with official development aid and external debt unlikely to cover those needs.
It further says a decade or so of strong growth has provided many countries with the opportunity to access international financial markets.
For example between 2006 and 2009, the average African country saw its external debt stock grow 7.8 per cent per year, a figure that rose to 10 per cent per year in 2011–2013 to reach $443 billion or 22 per cent of gross national income by 2013.
It reveals that Several African countries have also borrowed heavily on domestic markets, with specific examples and analyses of domestic debt in Ghana, Kenya, Nigeria, the United Republic of Tanzania and Zambia.
The report say in some countries, domestic debt rose from an average 11 per cent of gross domestic product in 1995, to around 19 per cent at the end of 2013, almost doubling in two decades.
“Many African countries have begun the move away from a dependence on official development aid, looking to achieve the Sustainable Development Goals with new and innovative sources of finance,” Dr. Kituyi says.
The report argues that African countries should look for complementary sources of revenue, including remittances, which have been growing rapidly, reaching $63.8 billion to Africa in 2014.
The report discusses how remittances and diaspora savings can contribute to public and development finance.
“African governments should add new revenue sources to finance their development, such as remittances and public–private partnerships, and clamp down on illicit financial flows, an UNCTAD report said on Thursday, warning that debt looks unsustainable in some countries.”
It says together with the global community, Africa must also tackle illicit financial flows, which can be as high as $50 billion per year saying between 1970 and 2008, Africa lost an estimated $854 billion in illicit financial flows, roughly equal to all official development assistance received by the continent in that time.
And while Governments should be vigilant of the borrowing risks, public–private partnerships have also started to play a more prominent role in financing development.
In Africa, public–private partnerships are being used especially to finance infrastructure. Of the 52 countries considered during the period 1990–2014, Nigeria tops the list with $37.9 billion of investment, followed by Morocco and South Africa.