IMF raises concern over rising debt in Africa, calls for adherence to fiscal adjustment plans

The International Monetary Fund (IMF) has expressed concern over rising public debt in Nigeria and other African countries, calling for fiscal measures to arrest the trend.

IMF’s Director for African Region, Mr Abebe Selassie, stated this at the weekend in Washington DC, United States, during a press briefing at the annual meetings of the World Bank/IMF.

Selassie noted that although virtually all African countries were hugely indebted, public debt was more prevalent in oil-exporting countries in Africa.

He attributed “fiscal deficits, growing interest bills and valuation effects associated with exchange rate depreciation” as the factors responsible for the growing debt.

According to him, conducive external financing environment which has eased access and cost of borrowed funds, has encouraged increased borrowing and shot up Africa’s debt profile.

“But this decline in borrowing costs has improved access to financing, allowing several countries to return to the Euro bond market in the first half of this year,” he said.

While he acknowledged the fiscal adjustment plans put in place by African countries, he stressed that adherence to the plans was more important.

“Most sub-Saharan countries are planning fiscal adjustment in the coming years. So, the key message in passing will be that countries need to stick to the adjustment plans.

“Absent this, if they fail to do the adjustment they have already planned we will see public debt going up at the same elevated pace that it has been growing in the last couple of years.

“The medium level of debt in sub-Saharan Africa has increased from 34 per cent in 2013 to 48 per cent of GDP in 2016. Most of the pronounced increase in debt has happened in oil-exporting counties following the deterioration in their economic conditions,” he said.

The Director, who linked the fragile growth in the continent’s economy to increase crude oil production in Nigeria and ease of drought situation in eastern and southern Africa, among others, emphasized fiscal reforms as a strategy to lighten the debt yoke.

Asked if Africa countries needed home-grown economic models rather than the Western-type model which has failed to deliver the expected results, Selassie agreed that development strategies should be “country and time-specific.”

“So, a strategy you have in Nigeria now versus 10 years ago are going to be different. So, absolutely, I think having developing plans and models or reform strategies that are specific to Nigeria’s specific needs are important,” he said.

He commended the improvement in the forex market, particularly the reduction in rates between the official and parallel markets, calling for further improvement.