African Nations Risk Mortgaging Future for Today’s Consumption

By Dipo Olowookere

The Chief Economist for Africa at the World Bank Group, Mr Albert Zeufack, has expressed worry at the huge amount of money used by some African countries to service their debts.

In a press statement issued last Wednesday, the global lender said Africa’s poorest countries saw little to no progress on average in improving the quality of their policy and institutional frameworks in 2018, according to its annual Country Policy and Institutional Assessment (CPIA).

It noted that the average CPIA score in Africa’s 38 International Development Association (IDA)-eligible countries in 2018 remained unchanged at 3.1 on a scale of 0 to 6, with some areas of social policy seeing improvements while macroeconomic management weakened, adding that the rule of law, accountability and transparency, and the quality of public administration remained major areas that impede the efficient use of public resources across the region.

This year’s CPIA Africa report takes a closer look at debt management, as the median government debt-to-GDP ratio reached 54.9 percent of GDP in 2018, an 18.5 percentage-point increase since 2013. At the same time, the share of foreign currency bonds in total external debt increased by 10 percent while the shares of debt owed to commercial and non-Paris Club creditors rose by 5 percentage points since 2010, and sovereign bond issuances have increased rapidly.

Mr Zeufack, who was quoted in the statement, stressed that, “Some African countries are at risk of mortgaging their people’s futures in favour of today’s consumption,” pointing out that, “When countries spend most of their revenue servicing debt, fewer resources are left for education, health, and critical services for their people. This stops progress in its tracks.”

Taken together, the increase in debt levels paired with the shift of external debt toward more market-based, more expensive, and riskier sources of finance have increased debt vulnerabilities substantially among IDA countries in Sub-Saharan Africa. The report recommends that countries improve their debt management capabilities and systems, which can enhance transparency and help stabilize the economy in the long-term.

Rwanda continues to top the CPIA ratings both in Africa and around the globe with a score of 4.0, followed in the region by Cabo Verde (3.8) and Kenya, Senegal, and Uganda (all at 3.7). South Sudan remained the lowest-scoring country on the CPIA with a score of 1.5, the report said.

Fragile countries in Sub-Saharan Africa improved slightly in the areas of gender equality, human development, and environmental stability, which bodes well for their ability to tackle the drivers of conflict and exclusion. In fact, fragile countries in Africa saw stronger performance in social inclusion than fragile countries in other parts of the world. Non-fragile IDA countries in Africa performed on par with their global peers overall, with the notable exception of social inclusion policies, where they underperformed especially on the issue of gender equality, it added.

“Improvements in social inclusion and service delivery have historically been crucial elements of countries’ transitions out of fragility, so even modest steps count,” said Gerard Kambou, Senior Economist and Lead Author of the CPIA report.

“African countries, fragile and non-fragile, need to keep the focus on gender, education, health, climate, and governance issues alongside macroeconomic management if they want to see true and lasting progress,” Kambou added.

The report recommends that Africa’s IDA countries accelerate business regulatory reforms to support private sector development and improve domestic revenue mobilization in addition to strengthening their debt management. The report team plans to hold discussions on this year’s results and recommendations in several African countries in September 2019.