Be cognizant with borrowing terms – World Bank advises African leaders

Andrew Dabalen, the Chief Economist for the Africa Region at the World Bank, has urged African leaders to be mindful of the terms of borrowing when negotiating with creditors.

He underscored the importance for African governments to diversify their financing sources, taking into account the cost of financing they receive from creditors such as the International Monetary Fund, World Bank, and others.

In an interview with Bernard Avle on The Point of View on Citi TV, Mr Dabalen said, “I think it’s really important to keep in mind that it’s a good thing for countries to have diversified sources of financing. One source of financing is not going to be enough.

“It’s really important for countries because the needs of countries are much larger than whatever financing they can get. Unless you could always be a country that has got a lot of oil that is demanded by the rest of the world, and you have gas and a lot of money. But for most countries that are not wealthier, countries need to have diversified sources of finance.

He highlighted, “What is important is not so much about whether in fact they should go into commercial diversification or whether it’s affordable. And I think the most important thing for countries is to keep in mind the cost of financing that they are getting and the terms upon which they are borrowing. Be very transparent about the terms of the borrowing.”

He further advised African leaders to steer clear of high-cost debts, as interest rates are likely to surge during repayments due to potential shocks.

“And try to avoid expensive debts that are short term. Because whenever there’s a shock in the world, there are always going to be shocks in the world that affect interest rates. If it’s already high, it will even be higher, and short maturity is going to be a very painful adjustment.

“And so that is what we advise countries to do. To be very cognizant of the terms of borrowing, be transparent about it and try and avoid very expensive debts. That will incur all kinds of hardships,” Mr Dabalen cautioned.