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Debt relief is crucial for Africa – Ms Keita

Tuesday November 24 2020
debt

Rising debt levels in Africa remain a constant concern as countries have borrowed significantly to deal with the pandemic. FILE PHOTO

By The EastAfrican

Ms Mama Keita is the Director, UNECA Sub-regional Office for Eastern African based in Kigali, Rwanda. In an interview with The EastAfrican, she offers insight into the impact of the pandemic, the ongoing negotiations of AfCFTA and underscores the need for region to prioritize containing the pandemic to support economic recovery.   

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Rising debt levels in Africa remain a constant concern as countries have borrowed significantly to deal with the pandemic. Some countries are benefiting from debt relief, but many countries still face the real risk of default. How can this issue be addressed? 

In order to be able to cope with the crisis, save lives and livelihoods and at the same time continue to provide the public goods and services under their responsibilities, decision-makers need fiscal space.

Yet this has been reduced with the crisis that comes with less government revenue and more public expenditures needed. Expenses of course include debt payments requirements. Obviously, without economic growth, the risks of default are increased.

Countries must create the conditions under which they can continue to experience economic growth if economies are to recover and be able to meet their debt service payments.

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Part of the solution then is to prioritize better, adjust spending if possible, and strengthen efforts to mobilize domestic resources.

In addition, the international community should be called upon to the extent possible. In April 2020, the G20 proposed the Debt Service Suspension Initiative (DSSI) which was originally made available until December but has now been extended until June 2021. More is needed and they are aware of this.

The G20 summit, scheduled for November 21-22, is about to offer a new window for debt relief. We hope that the related conditionalities will be flexible and advantageous enough to encourage governments to join without fear that their access to international capital markets in the future will be compromised by a tarnished reputation as debtors. The fear is indeed to be degraded by the rating agencies.

On the other hand, governments must also strengthen their governance systems and increase as much as possible the level of transparency around the use of the additional budgetary space generated by the various supports offered by the international community.

At the ECA, we also call on the international community to allow the IMF to give African countries access to additional Special Drawing Rights (SDRs). This will provide liquidity for economies to continue to invest, produce, consume and hopefully stimulate economic growth.

During the pandemic, trade almost came to a halt, exposing the existing weaknesses in trade logistics across the region. What lessons can the region draw from the crisis to improve regional trade?

Cooperation in these issues is key; in Eastern Africa just like in all the other countries across Africa, what happened was that countries unilaterally implemented lockdowns without knowing what their neighbors were doing.

This is understandable as this is the first ever pandemic registered with such magnitude, both for Africa and for the rest of the World. And of course the uncoordinated actions impacted cross-border trade.

One major lesson is therefore that cooperation and coordination are really key if we are to preserve the regional economic activities going smoothly. First, discussing and  sharing information is needed to make sure that countries have a common objective of keeping the flow of trade going.

Next, it is important to agree on common cross boarder protocols on how to handle the disease; to put resources together for the implementation of the protocols, for trade and essential movements continue to take place, including humanitarian ones.

Under the strong leadership here in Eastern Africa, they came to draw this lesson very quickly and as soon as they started coordinating and cooperating, we saw the flow of trade almost coming back to normal.

Trading under the AfCFTA Agreement was due to commence on 1 July 2020, but as a result of the COVID-19 global pandemic, this date has been postponed to 1 January 2021. Looking at the current situation in terms of signing the agreement, ratification, and submission of tariffs, how feasible is this new date? 

Countries are working on it and have made a lot of progress; they are determined. The AfCFTA agreement has been signed by 54 out of 55 countries. In addition, more than 30 countries have ratified it to date. Recently we have seen two big countries (Nigeria and Angola) ratify.

That being said, what is needed for the agreement to come into effect is to set the terms. How will countries trade? In other words, countries should indicate their offers regarding the dismantling of their tariffs on trade in goods, they should also inform about their offers for liberalizing trade in services.

In this regard, 18 countries have so far submitted their trade offers; this is good progress given that this task is very technical. We hope other countries will follow soon.

Another important issue that is being debated concerns the Rules of Origin; this question is essential because these rules determine which products will be considered as produced and processed in Africa, and thus benefit from the liberalization of tariffs. For the AfCFTA to really make sense, it must add value to the production from African countries; it should help to strengthen both foreign direct investment and domestic investment. For this to be the case, well-specified rules of origin are essential.

For more than 80 commodities to be traded under the AfCFTA agreement, an agreement was reached on how to determine the rules of origin. This is a great achievement which gives hope for an implementation close to the AfCFTA. The momentum must be maintained.

Some countries have delayed submitting their tariff offers due to concerns about loss of revenue particularly where import duties are a significant part of total fiscal revenues. Is there a compensation mechanism being discussed to help countries cope with the revenue losses arising from implementation of AfCFTA?

We (ECA) are working with the African Union and other partners to make sure the AfCFTA is understood and that decisions are made with the right set of information. We support countries with impact studies to bring figures to the debate. It is normal for people and countries to have concerns because when countries remove tariffs on their imports, they are giving up some valuable sources of public revenue.

Therefore, we try to quantitatively estimate the amount of losses, but most importantly the gains, as the AfCFTA also has the potential for large gains. One of our studies estimates tariff losses at less than 1% of total government revenues for several countries, including Ethiopia, Rwanda, Kenya and Uganda.

On the other hand, for East Africa as a whole, the same study estimates that the AfCFTA has the potential to generate over 1.8 billion in welfare gains; increase intra-regional trade by over USD 1 billion and create over 2 million new jobs.

In general terms, the AfCFTA has the potential to increase GDP and thus generate new sources of public revenue, but more importantly, it can lead to major changes in the structure of the economy by promoting manufacturing and 'industrialization.

No advanced country in the world has developed without a solid manufacturing base. We should be looking at the potential net gains instead of just focusing on the losses.

Looking ahead, what will take for regional economies to recover faster from the adverse impact of the pandemic?

First of all, governments must continue to apply containment measures so that we do not shut down businesses again. If the disease is well contained, the economies will continue to grow, if it is not contained, people will be locked down and there will be no activity, which means economic contraction or even depression.

It is essential to continue to address the crisis and to save jobs and livelihoods. To do this, it is necessary to work on both the demand and supply side with good stimulus packages. We need to support the private sector which is the main producer of goods and services in economies.

The private sector needs government support through certain guarantees that will motivate them to continue investing and to take certain risks that can stimulate economic growth. The government could help by reducing the tax burden; and through access to loans with easy repayment schedules.

This is negotiated with the banking sector. Access to inputs entering the production process of local businesses must be preserved. For this reason, governments must work with their foreign counterparts to ensure that trade continues properly.

On the demand side, it is very important to pay attention to the consumers. Private consumption indeed contributes to over 50 per cent of economic growth in many countries. The consumers who are vulnerable and have lost their purchasing power need to be identified carefully and supported through dedicated solidarity funds.

Governments must also continue to improve the business environment to attract foreign direct investments. Encouraging news is announced on the availability of a vaccine in the near future. This indicates that international activities may resume soon.

External trade also needs to be preserved as much as possible as it is crucial both to ensure food security thoughts imports and to secure the much-needed exports revenues. With this respect, the pandemic requires collaboration.

Individual countries cannot cater for their own economy only. We need all countries to maintain vigilance at all ports of entry, for all type of transportation, especially Air, Road. The same measures are necessary to encourage the Tourism to resume; and for foreign direct investment to resume confidently.

A final recommendation is certainly for all African countries to redouble their efforts for the effective implementation of the AfCFTA. It's a huge opportunity.

Beyond the objective of recovering fast, we hope that the crisis will bring the governments and private sector to adopt environment-friendly modes of production, in order to build forward better.

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