No looming debt crisis in Africa - AfDB
What you need to know:
Safe. Countries are still at sustainable debt levels to GDP ratios.
The African Development Bank (AfDB) has dismissed fears of a possible debt crisis in Africa saying most of the countries in the continent are still in sustainable debt level to their Gross Domestic Product (GDP).
The pace at which public debt has increased in most African countries has been significantly higher in the recent years attracting concerns from the international community and the local public that countries are headed for debt crisis.
Increase in external debt is as a result of governments in the region stepping up borrowing for infrastructure development to foster long term economic growth and development.
Speaking during the Collaborative Africa Budget Reform Initiative (CABRI) workshop on strengthening Uganda’s public debt management capabilities at Kampala Serena Hotel on Monday, the AfDB chief economist Uganda country office, Dr Alex Rwabizambuga, said: “We should not be alarmed that debt crisis is looming in Africa.
Countries are still at sustainable debt levels to GDP ratios, but this does not mean that countries should continue borrowing so much without controls.”
Debt ratios to GDP
Giving the state of debt ratios to GDP in four East African countries, Dr Rwabizambuga said: “In the financial year 2016/17, the ratio of Uganda’s public debt to GDP is projected at 37 per cent, Kenya’s at 52 per cent, Tanzania’s is 37 per cent and Rwanda’s is 34.9 per cent.”
Dr Rwabizambuga said Uganda’s external public debt, largely concessional, has mainly been fuelled by increased public infrastructure investments in the oil, transport and energy sectors.
However, he said Uganda’s risk of external debt distress remains low and is the same with her peers in East Africa.
Mr Fredrick Matyama, the commissioner at the department of debt management in the ministry of Finance, said Uganda is borrowing from external sources for infrastructure development and domestically for paying of interest on the debt that had been borrowed in the last financial years.
Unlike in the past when funds from donor community in form of development assistance constituted the higher percentage of the Budget, Uganda government has reduced its dependence on aid to finance the Budget with government now financing 85 per cent of it using domestically generated revenues from taxes.
Mr Matyama said: “Uganda has changed from concessional basis (from multilateral institutions) to non-concessional basis from outside financial institutions. We still have a challenge of filling the gap of 15 per cent, so we borrow to provide services needed,” he said.
Going forward, Mr Matyama said there is need to create central debt management institution with front, middle and back office to do analysis on how the country should be borrowing and from which source.
The four- day CABRI workshop is being attended by both government officers from Kenya, Malawi, Rwanda and South Africa, Capital Markets Authority and representatives from the private sector.
The managing director Stanbic Bank, Mr Patrick Mweheire, said currently there is a lot of emphasis on debt not focusing on savings. “The level of saving in this country is still very low; so we should emphasise domestic saving,” he said.
Head of public finance management programmes at CABRI, Ms Aarti Shah, said the organistion provides platform between peer learning and allows countries to carry out critical policy reforms for best practice in fiscal policy formulation, public finance management and financial stability.
“In the past, our work has focused on budget policies and practices, planning and public expenditure. CABRI has added a new programme on public debt, cash management and bond market development,” she said.
The CABRI is an intergovernmental organisation of ministries of Finance from across Africa, which provides a unique platform for peer exchange and learning among senior public managers.