Does Africa has the ability to Pay IFI’s & Bilateral Loans? RL Vol XIII No 395 MMXIX

Africa’s Debt Sustainability

Does Africa has the ability to Pay IFI’s & Bilateral Loans?

Public Lecture – Respublica Litereria - RL Vol XIII No 395 MMXIX

Costantinos Berhutesfa Costantinos, PhD

Professor of Public Policy & Sustainable Institutional Reforms

https://addisababa.academia.edu/CostyCostantinos

Abstract

Africa is facing a looming debt crisis from International Financial Institutions (IFI) and bilateral lenders. Almost 40% of sub-Saharan African countries are in danger of slipping into a major debt crisis according to the ODI. The IMF has recently warned that Africa is heading towards a new debt crisis, with the number of countries at high risk doubling over the past five years. The World Bank now classifies 18 countries as at high risk of debt distress, where debt-to-GDP ratios surpass 50 %. Public debt dynamics, once an esoteric subject of interest only to macroeconomists, are suddenly in vogue. Two things matter in government-debt dynamics, the variance between real interest rates and GDP growth and the primary budget balance as a percentage of GDP. Afro-China rapport is often seen as a significant part of the problem. Its critics say that major projects carried out by China in Africa are too expensive, and burden the host countries with enormous debts they can't hope to repay. US official John Bolton went further by placing Cold War-style competition at the centre of US strategy in Africa, suggesting that Africa is being misled by China’s offers of hefty loans for infrastructure projects, luring Africans into debt traps, the Chinese regime is actually aiming to foster dependency relationships as part of its quest to achieve ‘global dominance.’ US insistence that it caters for Africa’s best interests strikes many as ‘paternalistic, patronising and unnecessary.’ Studies for the past four years finds “no evidence at all”.

The Chinese government is adamant that its economic relationships with African countries are mutually beneficial and rejects suggestions that it is using debt to expand global influence. So is China really responsible for Africa's growing debt burden? A new study based on the analysis of 4,300 Chinese-funded projects in 140 countries by AidData, paints a more complicated picture. African countries received the largest proportion, 59%, of projects financed by China between 2000 and 2014. But when it comes to the actual value of projects committed China’s African partners rank fairly low on the list. China’s funds to Africa are more than the combined total of the AfDB, the EU, IFC, the World Bank and the G8 countries. Chinese Foreign Minister Wang Yi played down concern over Africa's debts with Beijing as he arrived in Addis Abeba at the start of a four-nation Africa tour. China has funnelled cash and loans into infrastructure projects across the continent, where many African leaders consider Beijing's terms a better deal that than those offered by bilateral Western nations (AFP, 2019). It is recommended that nations enhance free movement of capital and labour, improve the private sector’s access to credit facilities and reconsider some aspects of the investment laws, managed restructuring of public sector, privatising and commercialising activities and fulfilling requirements for fiscal sustainability.

Key words: debt sustainability, Africa, China, aid, loan, infrastructure,

See paper here or  https://www.academia.edu/38184694/Does_Africa_has_the_ability_to_Pay_IFI_s_and_Bilateral_Loans_RL_Vol_XIII_No_395_MMXIX