20 June 2018

Africa: England's Accountancy Institute Allays Fears Over Africa's Debt

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Photo: World Bank

Lagos — Several African countries have reported a rise in their gross domestic product (GDP) despite fears over increased debt according to the Economic Insight: Africa Q2 2018 report launched yesterday by the Institute of Chartered Accountants in England and Wales (ICAEW).

The accountancy body In the report forecast GDP growth forecasts for various regions including East Africa which is set to grow by 6.1per cent , Southern Africa by 2.3 per cent , Central and West Africa at 3.6 per cent and Franc Zone at 4.5 per cent.

The report, commissioned by ICAEW and produced by partner and forecaster Oxford Economics, provides a snapshot of the region's economic performance. The regions include; East Africa, Southern Africa, Central and West Africa and Franc Zone.

According to the report; East Africa's GDP growth was mainly thanks to Ethiopia whose real GDP growth of 8.1 per cent , is forecast to result from continued public investment.

"The same kind of capital spending in Egypt, made possible by compliance with reforms proposed by the International Monetary Fund (IMF), will boost growth to five per cent making this the key driver behind the 3.9 per cent growth in North Africa's GDP this year," the report stated.

In Central and West Africa, growth is forecast to increase substantially to 3.6 per cent, up from 2.3 per cent in 2017. The standout economy in that region would be Ghana, where real GDP growth of 7.2 per cent in 2018 is forecast to come partly from increased public investment, and the resulting boost to the construction and manufacturing sectors.

Regional director, ICAEW Middle East, Africa and South Asia, Michael Armstrong said, "In spite of debt fears, most African regions have reported positive economic growth - mainly spearheaded by public investment and hydrocarbon resources. However, governments need to sustain this positive momentum while balancing their public debt."

The picture in the Franc Zone is slightly more positive than in 2017, with regional GDP growth forecast at 4.5 per cent. Most of the regions' growth however, will be provided by the two economies that are not oil dependent. These are Ivory Coast (7.0 per cent growth) and Senegal (6.7 per cent ), where continued government spending on infrastructure and ongoing improvements to the business environment are key drivers.

Southern Africa's growth would remain constrained by modest growth in South Africa. The region's GDP is forecast to grow 2.3 per cent in 2018, the slowest regional growth rate on the continent.

The report also highlights the debt financed capital spending by governments. It argues that the fears of over indebtedness in Africa were largely overblown. The growth recovery that started in 2017, would support a decline in the real debt burden over the medium- term, meaning that the debt burden would tend to become more sustainable over time.

At the same time, the profile of public debt is changing as tailored fittings replace off-the-rack offerings, allowing governments to take on external debt on more favourable conditions than before.

The negative of this, is that debt would become a problem in certain countries. Several African countries still remain at risk of debt distress because of fragmented structural adjustment and indiscriminate borrowing. Furthermore, populist governments look uncommitted to reforms.

These factors are reason enough to be nervous about debt, especially in countries that are vulnerable to swing in commodity prices.

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