Scrapping the debt of heavily indebted
African nations will only come back to haunt them, according to two of
the continent’s largest banks.
“Forgiveness is not helpful because your
debt is somebody’s else’s savings,”
the chief executive officer of
Lome-based Ecobank Transnational Incorporated, Ade Ayeyemi, said in an
interview at the Bloomberg Invest Global virtual conference yesterday.
“When you go to the market to borrow money, the market is looking at your current and past behavior,” he added.
China last week pledged to cancel some
interest-free government loans for African nations and offered to rework
commercial obligations as the world’s poorest continent grapples with
how to handle the coronavirus pandemic.
The vow means debt suspension by the
Group of 20 leading economies is gaining traction for all types of
official funding, after an initial focus on Paris Club agreements.
“To a great extent, forgiveness is a
form of default, and, essentially then, what it does is that it distorts
markets, so it is one area that we should all be conscious of the
unintended consequences,” CEO of Nairobi-based Equity Group Holdings,
Kenya’s largest bank by market value, James Mwangi, said in the same
interview.
“Essentially it talks about the creditworthiness of a country.”
The G-20 in April agreed to provide the
relief to help free up funds for more than 70 poor nations to deal with
the pandemic, but the process has been slow, with many private creditors
on the sidelines.
While a lockdown to contain the pandemic
has impeded output and sales of most companies in the continent, it is
boosting digital payments and helping governments achieve their goals of
financial inclusion, said Ayeyemi, whose lender has operations in 33
countries across the continent.
Ecobank is seeing 95 per cent of
transactions done on digital platforms since the pandemic started,
compared with 90 per cent previously.
The virus “has become the greatest accelerator of the adoption of digital,” he said.
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