Forget Coronavirus disease, we’re living with the deadly ‘debt virus’

Tuesday May 19 2020

As we all go through the Covid-19 crisis, washing our hands, covering our faces, and social distancing, many things will happen in the background and go unnoticed because we are literarily in a fight for our very existence.

One of those silent killer diseases that poor countries like Uganda experience is the accumulation of debt. Debt, whether at national or personal level, is tricky business depending on the circumstances the borrower is in.

You may borrow at a time when you need an injection of capital in a going concern to help increase the capacity of the business to produce so that it grows and moves faster and more efficiently in the market.

That is okay, especially if the market is readily available for your product. All things equal, including your discipline, you will sell and pay back the loan with interest – the production process of the business will take care of the debt.

Then there is borrowing to survive. You must feed, treat, cloth, house and secure yourself or you die. This type of borrowing is very dangerous. You borrow pegging repayment on some fortune in the future. An oil boom, a good return on the prices of your cash crops, etc. This is speculation akin to that of a punter.

The lender, be they the World Bank, IMF or the so-called development partner, is not the legendary mother goose that fends for its young ones. They are into lending money as a business to make a profit. They will want guarantees for repayment of the loan.

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Many times these conditions are hidden in the small print that many of us never get to know. You can’t be sure that lenders do not have a lien on your lands, mountains, lakes and rivers.

Lenders will see that you are desperate and vulnerable and their terms and conditions will take advantage of that to make themselves good money. There is no morality in these things.

If countries are not desperate, the experts and the media come in handy to create the situation where the narrative shows that we are in a life and death situation.

‘Experts’ predicted in February that by May, Africa would have 500,000 Covid-19 cases. ‘Disappointingly,’ we are still at 50,000.

Nevertheless, we have gone on a borrowing spree ostensibly to fight Covid-19. According to worldbank.org, “…together, official creditors have mobilised up to $57b for Africa in 2020 alone – including upwards of $18b from the IMF and the World Bank each – to provide frontline health services, support the poor and vulnerable, and keep economies afloat in the face of the worst global economic downturn since the 1930s.

Private creditor support this year could amount to an estimated $13b. This is an important start, but the continent needs an estimated $114b in 2020 in its fight against Covid-19, leaving a financing gap of around $44b.”

Yet, according to brookings.ed “concerns about an impending debt crisis in Africa are rising alongside the region’s growing debt. As of 2017, 19 African countries have exceeded the 60 per cent debt-to-GDP threshold set by the African Monetary Cooperation Programme (AMCP) for developing economies, while 24 have surpassed the 55 per cent debt-to-GDP ratio suggested by IMF.

Surpassing this threshold means that these countries are highly vulnerable to economic changes and their governments have a reduced ability to provide support to the economy in the event of a recession.”

The lenders who set the thresholds are still lending after they have been breached. There is no doubt most of this money will go into consumption and corruption going by history. Then there will be a need to service these debts which, on average, account for about 10 per cent of African governments’ expenditure.

The opportunity cost of servicing debt is expenditure on health, education and other social services, let alone financing of development.

Yet most of the money will go toward paying experts most of whom come from the lending countries and agencies in the West plus now China. They will need a four wheel drive fuel guzzling vehicle, a house in an upmarket secure area, a good international school for their children and other perks.

All this, the borrower has to pay for and by so doing sink further into debt prompting the need for more borrowing.

Covid-19 is a global pandemic and a business opportunity too. The African politician and the lender know this all too well. Borrowing will keep us borrowing. This debt virus has cause, a silent pandemic which poor countries have lived and will continue living with until they wake up and stop borrowing.

Should we fail to get out of this vicious cycle, the borrowers and also fail to pay the loans, don’t be surprised when physical features including huge tracks of fertile lands lakes and rivers end up being part of Europe and America right here in Africa. Debt is worse than Covid-19.

Mr Sengoba is a commentator on political and social issues.
nicholassengoba@yahoo.com.
@nsengoba

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