Monday, November 29, 2021

Drowning in debt

Africa’s economic managers are walking a tightrope in the face of spiralling external debt largely fuelled by rising fiscal deficits and the depreciation of exchange rates, especially in commodity exporting countries.

This information is contained in the World Bank’s 17th edition of Africa Pulse report released this past Wednesday.

According to the report findings debt sustainability risk in the region has increased significantly over the past five years with 18 countries at high risk of debt distress as at March 2018, compared with eight in 2013.

Given the upward and risky movement, African countries have been urged to focus on fiscal adjustment in order to manage their public debt level.

Punam Chuhan-Pole, the World Bank Africa Region’s lead Economist says public debt which continues to be on the rise, has also changed its composition.

Many countries are said to have shifted from traditional concessional sources of financing towards more market-based ones.

According to the latest World Bank report, of the 46 countries in the region (excluding South Sudan and Somalia due to lack of data) the debt ratios of 44 countries changed during 2014ÔÇô16. Of the 35 countries with rising debt ratios, 18 saw at least a 10-percentage point increase in this ratio between 2014 and 2016.

Zimbabwe, Mauritania, Sierra Leone, the Republic of Congo, S├úo Tom├® and Pr├¡ncipe, and Mozambique have seen their debt to GDP ratio increase by more than 20 percentage points.

Punam Chuhan-Pole says public debt levels are sustainable to the extent that the funds borrowed generate returns that allow timely repayment.

“However, some countries in the region are caught in an environment of low growth prospects, widened fiscal deficits, weaker currencies, and lower export revenues, and could face problems in repaying their debt. At the same time, normalization of monetary policy in the United State and credit rating downgrades in some African nations have raised borrowing costs for countries in the region.”  Particularly countries like, Angola, Mozambique, and the Republic of Congo.

Among 35 low-income and lower-middle-income countries in the region, the number of countries with low risk of debt distress declined from 12 in 2014 to six in 2016.

Chauhan-Pole expressed with concern that, “higher debt burdens and the rising exposure to market risks pose concerns about debt sustainability for African governments.”

Moving forward, the World Bank expert Chauhan-Pole advised that, “There is need to focus on fiscal adjustments where expenditure should be prioritised, quality of managing public investments and enhancing domestic resource mobilisation by African countries.”

She also pointed on the need to grow faster by reviewing structural reforms and regulatory frameworks should be made conducive to the private sector.

Is Botswana any better?

Available figures shows that as at March 2018 Botswana’s total government debt was at P26,989.6million made up of P16,659.30million external debt and P10,330.3million local debt (from Treasury bills, bonds and Debt participation).

This reflects a downward trend in the external debt which decreased to P16659.30m in 2017 from P18344.90m in 2016.

Official data shows that external debt in Botswana averaged P8615.34m from 2002 until 2017, reaching an all time high of P18344.90m in 2016 and a record low of P1771.80m in 2008.

Of the external debts, according to information from The Ministry of Finance and Economic Development and Bank of Botswana on the government’s debt sheet; African Development Banks tops at P13, 472.1million, second by International Bank for Reconstruction and Development at P1, 680.5million. Nordic Investment Bank is at P503.2million; OPEC Special Fund at PP187.4million; The Arab Bank for Economic Development in Africa at P181.2million;European Development Bank at P44.9million; International Development Association at P17.4million and; International Fund for Agricultural Development at P6.9million.

Loans from the governments also as external debts, China constitute the highest debt at P319.3million, second by Japan at P175.8million and Kuwait at P67.8million.

Botswana’s fiscal position remains tight. This calls for continued efforts to mobilize domestic revenues and judicious management of its expenditure in order to achieve the objective of fiscal sustainability. Failure to improve on collections of existing revenues, coupled with continued pressure on expenditure, may result in the responsible authorities resorting to other options in order to avoid the country running budget deficits for extended period, which is not sustainable.  

The country through its Ministry of Finance and Economic Development continues to work on the simplification of the tax administration by developing a Tax Administration Act to improve on the efficiency of tax revenue collection. Progress in drafting this legislation has been slow, but it is expected to be completed during the next financial year.

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