East Africa: Credit Agency Says Some EA Countries' Debt Worrying

Photo: Daily News
East African Community (EAC) is an intergovernmental organization composed of six countries in the African Great Lakes region in eastern Africa: Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda.

Interest levels on debts owed by 11 African countries that were part of the World Bank's Heavily Indebted Poor Country (HIPC) Initiative of the early 1990s are now back at pre-crisis levels.

A new report from international credit agency Standard and Poor's lists Uganda, Rwanda and Ethiopia among the 11 countries where it says the HIPC Initiative has failed.

It says that more than two decades after HIPC, debt-servicing costs are back to pre-crisis levels and have been increasing since 2011.

"Does this mean that the World Bank's aim to ensure that the world's poorest countries were not burdened by unmanageable or unsustainable debt has faltered? Arguably, yes," the report says.

Uganda's national debt has nearly trebled in the past three years to more than 50 per cent of GDP creating a risk of default, since nearly two-thirds of that borrowing is external, the central bank said recently.

The Bank of Uganda said the rising costs of servicing the country's $15.1 billion debt could hit economic growth because of reduced public investment. Three years ago, Uganda's debt was just $6 billion.

The debt is mostly a result of a ramping up of borrowing, mostly from China, to fund infrastructure projects including roads, power plants, fibre-optic cable networks and an airport expansion.

Across sub-Saharan Africa, government debt rose to 53 per cent of GDP last year, compared with just 11 per cent in 2011.

It adds that while Africa's debt is not at the same level as the 1990s, debt servicing as a percentage of government revenues has returned to the crisis levels of that time.

The HIPC was developed by the World Bank, the IMF and other creditors from 1996 onwards to reduce the debt of some poor countries as they were unlikely to repay in full.

In total, 11 countries were relieved of $99billion of debt, cutting their government debt from an average of 100 per cent of GDP to around 24 per cent by 2008.

As a result, "fiscal accounts are burdened by the same or higher debt-service costs relative to revenues as pre-[bailout]," S&P said.

Although the debt forgiveness initiative succeeded in offering "respite for many years", it has "failed to permanently reduce debt service burdens", according to S&P.

The warnings come on the back of a report from the Organisation for Economic Co-operation and Development that the impact of tax evasion across sub-Saharan Africa has become colossal.

It says that more than $50 billion per year is being lost to African governments through illicit flows out of the continent, a sum well in excess of all the funds received through aid.

See What Everyone is Watching

More From: East African

Don't Miss

AllAfrica publishes around 600 reports a day from more than 140 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.