The United Nations Economic Commission for Africa (ECA) has raised alarms over the state of debt across the continent, revealing that 40% of African nations are either in debt distress or at high risk.
Most of these nations are allocating more resources to debt interest payments than to critical development sectors, according to Hanan Morsy, Deputy Executive Secretary and Chief Economist at the ECA.
Morsy made the remarks at the ongoing 2024 African Economic Conference (AEC) in Botswana, themed “Securing Africa’s Economic Future Amidst Rising Uncertainty.”
The event, co-hosted by the African Development Bank (AfDB), the United Nations Economic Commission for Africa, and the United Nations Development Programme, in collaboration with the Botswana Government, provides a platform for African leaders, economists, and policymakers to tackle the continent’s economic challenges.
Call for a new financial framework
In a fireside chat on “Global Financial Architecture Reform Agenda: A Focus on Debt and Tax,” Morsy emphasized the urgency of overhauling the G20 Common Framework for debt treatment.
“There is a need for an efficient, timely, and transparent framework. We must integrate the private sector, avoid prolonged negotiations, and ensure fairness across all creditors,” Morsy said.
- She also highlighted the success of Egypt’s Samurai and Panda bond issuances, which secured lower interest rates of 1.5% and 3%, respectively, compared to Eurobonds’ 8% rate.
- Morsy advocated for African nations to diversify their financing mechanisms and adopt guarantee schemes to lower borrowing costs.
- The Chief Economist criticized the unequal distribution of the International Monetary Fund’s (IMF) Special Drawing Rights (SDRs), noting that Africa received only 5% of the $650 billion issued post-COVID-19, while wealthier nations mobilized trillions of dollars.
- She called for the reallocation of unused SDRs from fiscally stronger nations to African economies via multilateral development banks like the AfDB to ensure resources reach the regions that need them most.
Capacity building and local expertise
Also speaking, Chief Economist and Vice President of the AfDB, Prof. Kevin Urama, emphasized the importance of strengthening financial management systems across African governments.
He highlighted initiatives like the Public Financial Management Academy for Africa, launched in 2021, which aims to modernize tax systems, expand tax bases, and digitize financial operations.
Urama stressed the importance of African countries presenting unified negotiation positions backed by robust data and analysis to navigate complex global financial systems.
“This collaborative model ensures resources are directed to where they are most needed,” Urama said.
- Both Morsy and Urama emphasized the broader implications of systemic financial reforms. These include driving economic growth, creating jobs, and boosting government revenues.
- They called for African-led solutions that leverage local expertise and align with the continent’s long-term development goals.
- The conference reached a consensus that reshaping Africa’s financial architecture is essential to addressing its debt challenges and ensuring sustainable economic growth amidst a volatile global landscape.
What you should know
Amid concerns over the rising debt profile of the country, the Lagos Chamber of Commerce and Industry (LCCI) has also recently expressed apprehension over the Federal Government’s plan to secure a $2.2 billion loan, cautioning that the move could exacerbate debt sustainability challenges and hinder critical infrastructure development.
The LCCI, in a statement released on Friday, highlighted the urgent need for Nigeria to diversify its funding sources beyond debt financing.
The Director-General of the LCCI, Dr. Chinyere Almona, urged the government to intensify efforts to expand the non-oil revenue base through tax reforms and promote export-driven sectors such as agriculture and manufacturing.
