Be careful with external borrowing, economists urge African states

Economists have called on African states to be cautious with borrowing excessively from external investors as it could pose a serious threat to their economies.

Mr Tirivangani Mutazu, a Policy Analyst for Debt Management, with the African Forum and Network on Debt and Development (AFRODAD), said a number of African countries were experiencing difficulties in servicing their debts.

He said as some were in arrears, others had impending debt restructuring, and many others had indications of high probability of future debt distress.

He said this at a “Debt Advocacy Forum” organised in Accra.

The event, organised by Grassroots Africa and AFRODAD to discuss debt management and borrowing by African states, was held under the theme, ‘Interrogating Ghana’s debt management strategy: Lessons for West African states.’

The forum was also an effort to highlight the need to reduce borrowing from external sources and ensure that debt management processes were transparent and accountable.

Mr Mutazu said about 15 per cent of African countries were in debt distress and the same fate awaited about 28 per cent of countries that were experiencing higher risk of debt distress.

He said only seven per cent out of more than 53 countries, Uganda, Morocco, Libya, Botswana, Lesotho, Rwanda, Senegal, and Tanzania were faced with low risk of debt crisis.

Mr Mutazu said the current debt servicing, which was the repayment of interest and principal, took up 20 per cent of governments’ annual budgets and this leaves some countries with tight fiscal space to focus on important government issues like reducing poverty, and realising national development plans and the sustainable development goals.

In as much as borrowing could promote growth and act as a useful development tool, unsustainable borrowing could be a problem especially for countries with poor investment choices and debt servicing potential lower than expected, he said.

This, he said, posed major development obstacle that led countries to lag behind in their commitments to national and global development plans.

Mr Mutazu recommended that Ghana continues to improve the management of its sustainable debts strategies, fix its financial sector fragilities and pursue the fiscal responsibility law recently passed by Parliament to maintain public debt below the established threshold of 65 per cent of Gross Domestic Product.

Mr Johnson Wilson Appiah Kubi, an economist who presented an AFRODAD report on ‘Loan contraction process and management’, said public borrowing had benefits as it served as a near-zero risk investment option for investors and fund managers whose key objective was the security of their investment.

He said it also helped to develop market infrastructures like the legal framework, enhance the efficiency of the payment system and as well served as a tool for liquidity management for a country’s central bank.

Mr Kubi said it is unfortunate how the meagre revenues collected in Ghana were used to service debt instead of expenditure on vital sectors like education, health and critical infrastructure.

He said Chad and Mozambique were in debt distress; and Ghana, Central African Republic, Senegal and Zambia were at high risk of debt distress. GNA