Contributed
The Harvard trained Financial Secretary of Sierra Leone, Sahr Jusu (photo), is of the view that many countries in Africa have become more indebted after going through massive debt cancellation arrangements two decades ago.
Jusu was speaking at a joint IMF/World Bank Annual meeting taking place in the touristic city of Bali, Indonesia at a seminar with the theme “Debt: Challenges Ahead” by a panel of experts led by the IMF First Deputy Managing Director, World Bank Chief Executive Officer, Professor of Economics, John B Taylor of Stanford University among others.
Here is the rest of Jusu’s statement:
Africa, he said, is facing serious challenges with their sovereign debt. The rising debt and associated debt service payments crowd out spending in human capital and public infrastructure.
Some 20 years ago, 36 countries benefited from the famous debt cancellation efforts of the IMF and World Bank, the Heavily Indebted Poor Countries (HIPC) Initiative. Of the 36 countries, 30 of them were in Africa in which about US$76 billion in debt-service relief was cancelled by creditors over time. In many, the news for the qualification of debt cancellation was welcomed by drums and celebrations in capitals believing debt was becoming a thing of the past and their Governments would have substantial fiscal space to finance poverty and build infrastructure. As Justin Sanderful, Senior Fellow of Center for Global Development said, truly so, “debt relief wiped away much of Africa’s sovereign debt, but after a decade of growth, debt stocks are rising again”.
During the pre-debt relief era, African countries debts were owed to multilateral and bilateral creditors, mainly the IMF, World Bank, African Development Bank and the Paris Club. However, the composition of today’s Africa debt is skewed towards commercial creditors and private bond holders. This makes it much difficult to address in the event of debt overhang default as donor partners will be required to bailout debtor countries against commercial debt defaults. Based on World Bank’s statistics, some countries debt have actually more than doubled. According to the Jubilee Debt Campaign,“28 countries were rated as in debt distress or at high risk of debt distress by end of 2017, up from 22 at the end of 2016, and 15 in 2013.
The number of countries classified as low risk has more than halved – from 24 in 2013 to 11 countries in 2017”. For instance, “Ghana’s total sovereign debt is more than double today than it was at its peak before debt relief”.
Despite this, Ghana’s economic performance has been making steady growth with increased investment in tangible public sector investment. The country’s positive performance is abounding for the eyes of recent visitors to the deserved West African state.
A southern African country was in 2016 engulfed in a scandalous debt crisis emerging from government guarantee of $2.0 billion. The money was supposed to be for the financing of a tuna fishing fleet and for the navy to protect boats operating in the country’s territorial waters. The State guarantee loans were never revealed to the country’s parliament, the IMF, the financial markets or the people. When the deal backfired, what was known to be off balance sheet transaction, immediately became direct liability of the state, increased debt stock level to over 125 percent of GDP, and the country became high risk of debt distress resulting to defaults to it external creditors.
The economy has contracted since the crisis broke out and many friendly donors have either withdrawn or suspended programs to the country exacerbating the worsening foreign exchange situation. Similarly, a small tourist attracted West African country post-HIPC debt has increased substantially reaching a level of over 110 percent of GDP. The recent debt sustainability analysis conducted by the IMF reveals that “the present value of public debt-to-GDP remains well above its indicative benchmark for the entire forecast horizon of 20 years. That the elevated public debt ratios of the country reflect weaker economic growth outturns and past fiscal slippages including unbudgeted State Owned Enterprise support, compounded by the massive theft mainly from SOEs over the years.
At home, in Sierra Leone, the situation is not entirely different. Sierra Leone qualified for HIPC debt relief in December 2006. As stated in the IMF HIPC Board documents, the external debt stock of Sierra Leone was reduced from $1.6 billion to $397.2 million, including a largely non-paying commercial debt of US$144.0 million. It means that debt service relief over time was reduced by US$1.2 billion; IMF, World Bank and ADB cancelled US$861.0 million while the Paris Club creditors cancelled 100 percent of US$316 million. The non-Paris Club creditors delivered debt relief in different forms of restructuring arrangements. From the debt relief, IMF disbursed to the reserves of the Bank of Sierra Leone US$173.0 million (then equivalent to a cash of Le524.0 billion) as debt relief budget support to Government. Well, where is Sierra Leone after a decade of post-HIPC era. As at December 2017, the external debt of US$1.55 billion was almost exactly at the pre-HIPC level. This means that the debt literally increased by US$114.0 million yearly in the last 10 years. The situation is exacerbated by huge and expensive domestic debt of US$650 million with a convoluted history of domestic arrears of about US$1.4 billion owed to suppliers as at 30th March 2018.
However, the prudent management of fiscal operations of the new Government of President Retired Brigadier Julius Maada Bio has lifted the foot off the speedometer and applied the brake on excessive central bank borrowing, excessive and unbudgeted spending but increasing domestic revenue to commence efficient management of the economy. This, as it is now internationally recognized, has paved the way for successful negotiations between the Government and IMF for resumption of credible economic program.
Despite these efforts, it is very clear to say that Sierra Leone, like other post-HIPC African countries’ debts have increased steadily and a good number of them are more vulnerable than those that didn’t go through HIPC Initiative. In a bid to financing poverty and public infrastructure aimed at delivering on democratic election promises, will Africa’s debt trigger another debt crisis? I will then leave my readers with a simple question: “Is there life after debt?
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