Credit agency says some EA coun­tries’ debt wor­ry­ing

The East African - - NEWS - By PAUL RED­FERN Spe­cial Cor­re­spon­dent

IN­TER­EST LEV­ELS on debts owed by 11 African coun­tries that were part of the World Bank’s Heav­ily In­debted Poor Coun­try (HIPC) Ini­tia­tive of the early 1990s are now back at pre-cri­sis lev­els.

A new re­port from in­ter­na­tional credit agency Stan­dard and Poor’s lists Uganda, Rwanda and Ethiopia among the 11 coun­tries where it says the HIPC Ini­tia­tive has failed.

It says that more than two decades af­ter HIPC, debt-ser­vic­ing costs are back to pre-cri­sis lev­els and have been in­creas­ing since 2011.

“Does this mean that the World Bank’s aim to en­sure that the world’s poor­est coun­tries were not bur­dened by un­man­age­able or un­sus­tain­able debt has fal­tered? Ar­guably, yes,” the re­port says.

Uganda’s na­tional debt has nearly tre­bled in the past three years to more than 50 per cent of GDP cre­at­ing a risk of de­fault, since nearly two-thirds of that bor­row­ing is ex­ter­nal, the cen­tral bank said re­cently.

The Bank of Uganda said the ris­ing costs of ser­vic­ing the coun­try’s $15.1 bil­lion debt could hit eco­nomic growth be­cause of re­duced pub­lic in­vest­ment. Three years ago, Uganda’s debt was just $6 bil­lion.

The debt is mostly a re­sult of a ramp­ing up of bor­row­ing, mostly from China, to fund in­fras­truc­ture projects in­clud­ing roads, power plants, fi­bre-op­tic ca­ble net­works and an air­port ex­pan­sion.

Across sub-sa­ha­ran Africa, gov­ern­ment debt rose to 53 per cent of GDP last year, com­pared with just 11 per cent in 2011.

It adds that while Africa’s debt is not at the same level as the 1990s, debt ser­vic­ing as a per­cent­age of gov­ern­ment rev­enues has re­turned to the cri­sis lev­els of that time.

The HIPC was de­vel­oped by the World Bank, the IMF and other cred­i­tors from 1996 on­wards to re­duce the debt of some poor coun­tries as they were un­likely to re­pay in full.

In total, 11 coun­tries were re­lieved of $99bil­lion of debt, cut­ting their gov­ern­ment debt from an av­er­age of 100 per cent of GDP to around 24 per cent by 2008.

As a re­sult, “fis­cal ac­counts are bur­dened by the same or higher debt-ser­vice costs rel­a­tive to rev­enues as pre-[bailout],” S&P said.

Al­though the debt for­give­ness ini­tia­tive suc­ceeded in of­fer­ing “respite for many years”, it has “failed to per­ma­nently re­duce debt ser­vice bur­dens”, ac­cord­ing to S&P.

The warn­ings come on the back of a re­port from the Or­gan­i­sa­tion for Eco­nomic Co-oper­a­tion and De­vel­op­ment that the im­pact of tax eva­sion across sub-sa­ha­ran Africa has be­come colos­sal.

It says that more than $50 bil­lion per year is be­ing lost to African gov­ern­ments through il­licit flows out of the con­ti­nent, a sum well in ex­cess of all the funds re­ceived through aid.

Pic­ture: File

Mega projects such as the North­ern By­pass have led Uganda to bor­row heav­ily.

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