23 March 2019

Africa: Favourable borrowing terms necessary for better African debt management, says ECA report

press release

Marrakesh, Morocco, March 23, 2019 – African countries need to choose borrowing under more favourable conditions and rebalancing their fiscal policy framework to ensure better management of their debt, says the Economic Commission for Africa (ECA).

In its 2019 Economic Report on Africa (ERA) launched today in Marrakesh, Morocco, the Commission says a better debt management plan will enhance macroeconomic stability and policies geared to achieving sustainable development.

The Report, whose theme is “Fiscal policy for financing sustainable development in Africa”, also sees the wisdom in the countries financing their deficits in domestic currency markets by issuing financial obligations with the longest possible maturity.

This is because domestic currency debt has the advantage of being “hedged” by the government’s assets and income in the country’s currency as opposed to government assets in foreign currencies, which to a large extent consists of their foreign currency reserves.

“While foreign reserves may be large enough to manage current commitments on total (private and public) foreign debt, reserves may not be large enough in the event of capital flight or a need to roll over short-term debt,” says the Report.

Noting that public debt level on the continent in 2017 rose to 59.1 per cent of gross domestic product (GDP), the Report says many African countries are now vulnerable as a result of the high levels, with an increasing number “at risk of debt distress.”

Five countries -- Chad, Mozambique, South Sudan, Sudan and Zimbabwe -- are in debt distress already compared with only Chad and The Gambia in 2017, it says.

The deterioration in the finances of African governments and the squeeze on international financial liquidity threaten the fiscal balance and debt sustainability of those governments, it says in the section on fiscal and public debt sustainability.

“Economic growth is vital for debt sustainability, which in turn is necessary for macroeconomic stability,” according to the ERA. “An economy that grows faster than it accumulates debt creates fiscal space for policies designed to achieve sustainable development. “

This year’s edition of the Report examines the institutional and policy reforms that can enable African countries to maximize domestic public resource mobilization to finance their development agenda, focusing on the role of fiscal policy. It identifies several quick wins in Africa’s pursuit of additional fiscal space to finance achievement of the Sustainable Development Goals (SDGs) and the aspirations of Agenda 2063.

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