Credit agency says some African countries’ debt worrying

Servicing of debts owed by 11 African countries that were part of the World Bank’s Heavily Indebted Poor Countries (HIPC) Initiative of the 1990s is now back at pre-crisis levels.

Paul Redfern

A NEW report from international credit agency Standard & Poor’s (S&P) 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% of gross domestic product (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% of GDP last year, compared with just 11% in 2011.

The S&P report adds that while Africa’s debt is not at the same level as in the 1990s, debt servicing as a percentage of government revenues has returned to the crisis levels of that time.

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

The HIPC Initiative was developed by the World Bank, the International Monetary Fund (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 $99 billion of debt, cutting their government debt from an average of 100% of GDP to around 24% by 2008.

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 (OECD) 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. u

This article was originally published in The East African (2 June 2018).

*Third World Resurgence No. 329/330, January/February 2018, p 21