JOHANNESBURG, South Africa, November 12, 2018/ -- by Akani Chauke
By the
International Monetary Fund (IMF’s) own admission, there are
circumstances where African governments’ debt levels are so high they
become unsustainable, such that the scheduled debt service exceeds the
capacity of the member to service it.
This rings true for a
number of countries in the Sub-Saharan African region, where the
organisation, in its regional economic outlook for the year, warned debt
servicing costs were becoming a burden, especially in oil-producing
countries.
Among these are Angola, Gabon and Nigeria.
Overall,
public debt rose above 50 percent of gross domestic product (GDP) in
some 22 countries at the end of 2016, up from ten countries in 2013.
According
to the Brookings Institution, Cape Verde, Gambia, Congo, Mozambique,
Mauritania, Sao Tome, Togo, Zimbabwe, Ghana and Sudan, respectively, are
the countries searing under the heaviest debt.
The rankings are
based on public debt as a percentage of GDP. Cape Verde are the heaviest
indebted, with its debt 129,7 percent of GDP. Sudan’s debt is 66,5
percent of GDP.
Recent statistics suggest Angola, Africa’s second
largest crude oil producer after Nigeria, is not far off. It has a
government debt equivalent to over 65 percent of the country's GDP.
Government debt to GDP in Angola averaged 49,75 percent from 2000 until
2017.
Statistics are based on data from the IMF’s World Economic
Outlook, the World Bank’s World Development Indicators, and various
countries’ national statistics offices and central banks.
IMF
economists- Sean Hagan, Maurice Obstfel and Poul Thomsen-
jointly blogged that one potent source of uncertainty is the role of a
big debt overhang in sapping political support for reforms from the
public, which could see its sacrifices as primarily benefiting
creditors.
“Pretending that unpayable debts can be repaid will
only sap the effectiveness of the debtor’s adjustment efforts,
ultimately making all parties lose more than if they had promptly faced
the facts,” the trio stated.
On the back of its warnings that
servicing debts were becoming burdensome, it is thus ironic that IMF is
making a comeback to the African continent.
Countries with an insatiable appetite to borrow, but struggling to repay loans, are sourcing funds from the institution.
Economists
pointed out after past few years of inactivity, largely because of
increased Chinese funding to Africa, the IMF was back in the fold.
This
is largely attributed to falling commodity prices and rising
interest rates on loans are pushing several countries into unaffordable
debt like that last seen in the 1980s and 1990s.
“Despite – or is
it perhaps because of – increasing volumes of Chinese financing to
Africa, that oft-reviled old banker, the IMF, is making a comeback to
the continent,” stated Peter Fabricius, Consultant of the Institute for
Security Studies (ISS).
He noted during the 1980s and 1990s debt
crisis many African countries turned to the IMF and its Bretton Woods
partner institution, the World Bank, for financial bailouts but the
economic formula, including African countries opening their economies to
international trade, liberalizing their currencies and drastically
cutting costs in exchange for loans, did not address Africa’s economic
woes.
“The 21st century, though, introduced a significant new banker – China,” Fabricus stated.
According to the expert, instead of conditionalities, China prided itself on giving or lending money with “no strings attached.”
The
IMF stated nonetheless, despite the different approach, the number
of sub-Saharan African countries in debt distress or facing high risk of
debt distress rose from seven in 2013 to 12 in 2016.
“And so, African countries are returning to the IMF to seek bailouts,” said Fabricus.
The
analyst noted China’s unconditional loans for infrastructure
had considered the borrowing countries’ abilities to service the loans.
Likewise,
this time around, IMF is not quite so demanding about opening economies
but it is still insisting that African countries who want loans cut
their spending, he added.
South Africa must swiftly slash
government borrowing if it is to avoid a debt trap that would force it
to seek help from IMF, Finance Minister Tito Mboweni warned.
Recently, IMF downgraded the GDP expansion for Africa’s two biggest economies-Nigeria and South Africa respectively.
IMF
cut growth projections for Nigeria to 1,9 percent. South’s economy
is projected to grow by 0,8 percent, down from 1,5 percent.
Newly-appointed
South African Finance Minister, Tito Mboweni, consequently urged
government against borrowing. This, he said would force the country to
seek assistance from the IMF.
“When you get into a debt trap that's where (at IMF) you end up," he told parliamentarians.
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