AfDB warns African governments on international debt

Sep 01, 2016

It said "huge amounts" of capital are available more locally.

The head of the African Development Bank has urged African governments to move away from international borrowing and focus on expanding their tax base, as the continent faces an economic downturn triggered by the fall in commodity prices and the slowdown in China.

Akinwumi Adesina told the Financial Times that Africa is facing a debt “challenge” rather than crisis, but warned that "there has to be a lot more fiscal consolidation".

The pace at which public debt has increased in most African countries has been significantly higher in the recent years, driven by the issuance of bonds on regional and international markets to finance infrastructures and balance budgets.

African governments sold $12 billion (€10.8 billion) of eurobonds last year, compared with about $26.5 billion between 2006 and 2014, according to the African Development Bank.

Akinwumi Adesina said that it was risky for governments to borrow overseas because many African currencies are weakening and the US Federal Reserve appears set to raise interest rates again this year.

He believes that governments should instead seek to expand their tax base and improve the efficiency of tax administration to boost public finances, arguing that the tax-to-GDP ratio in sub-Saharan Africa was about 14.5 per cent, compared with more than 30 per cent for most developed nations.

“Instead of African countries running off to raise a lot of eurobonds, I think there’s huge amounts of capital available more locally that we must tap for Africa’s development. A lot more needs to be done to expand the tax base in Africa," he said.