ADDIS ABEBA – United Nations told African Central Bank Governors that concerns around Africa’s rising sovereign debt should not focus so much about its level, but rather the ability to pay for it.
Managing debt dynamics well is all about implementing good fiscal policy, which in turn is linked to effective monetary policy, said Vera Songwe, UN ECA Executive Secretary.
Songwe said this while speaking at the 42nd Annual Meeting of the Association of African Central Banks held in Rwanda Kigali on Wednesday.
“When we talk about increasing Africa’s sovereign debt, immediately people worry that we’re overspending. But it is not only about the level of debt but about the capacity to pay”, Songwe highlighted.
She pointed to Rwanda as an example of fiscal prudence: “Rwanda shows what good management of debt looks like – with a relatively low share of revenues dedicated to serving debt.
Just a decade away from the Sustainable Development Goals endpoint, economic growth on the continent is still far below the required levels.
This period of relatively easy access to capital, due to the prevailing low-interest rates in high-income countries, had not necessarily translated into additional growth for African countries, she stressed.
Songwe cited estimates suggesting that Africa needs $614 billion and $638 billion per year to meet its development goals, while for the funds needed to implement the 2030 Agenda across all low- and lower-middle-income countries totals $1.2 trillion per year
“When you have poor fiscal management, increasing the debt threshold is not a solution,” she cautioned.
Songwe said that the conversation about debt should avoid being alarmist – but we should look at the two sides of the story: those countries already in debt distress, and those that are doing well today, but at the same time are ratcheting up higher levels of debt because of their wishes to reach the SDG 2030 Goals.