ECA urges member states to institute debt management strategies to boost economic growth

NAIROBI, Kenya - African countries should institute effective debt management strategies to boost economic growth and avoid falling into the debt trap, the Economic Commission for Africa (ECA) Director for Macroeconomics and Governance Division, Adam Elhiraika, has urged.

Speaking while officiating a peer learning workshop on debt management strategies for member states being held in Lusaka, Zambia.

Mr. Elhiraika said debt management was a challenge for African countries as debt becomes a significant source of funding for their economic growth and development.

He further pointed out that “However, this provides an opportunity to effectively enact budgetary protection for various events more apparent in the foreseeable future. Efficient and effective debt management will allow debtor countries to take action to avoid the legacy of ‘too little, too late’ sovereign debt management and restructuring.”

The ECA is hosting a capacity-building workshop for senior government officials in an effort to enhance countries' fiscal prudence. The workshop is to assist delegates from Ethiopia, Sierra Leone, South Africa, Sudan, and Zambia share information, experiences, and best practices on debt management strategies, policies, and operations to enable them to implement viable debt management procedures and strategies.

Mr. Elhiraika said in the past six decades, every global recession has led to a rise in global government debt, and over the past decade, many countries in Africa have increased their public debt levels. Most of the current public debt was accrued during the fiscal years of 2020 and 2021 when countries took on debt to deal with the effects of the Covid-19 pandemic.

The ECA noted that during an economic crisis, continued borrowing has led to high debt accumulation, dwindling the government's capacity to effectively manage public debt. Debt distress has been aggravated by huge current account deficits, massive redemption schedules, and a lack of access to conventional lending markets. Countries often rely on debt as an instrument for financing growth and development.

During the workshop, delegates will present the current state of debt in their countries and highlight the key challenges hampering debt sustainability. In addition, they will discuss debt sustainability analysis procedures and medium-term management strategies and enhance the capacity of public debt managers to evaluate the structure, dynamics, and risks of sovereign debt portfolios.

Sharing experiences with debt management, Joseph Thullah and Mohamed Samura from the Public Debt Division in the Ministry of Finance said Sierra Leone had implemented a number of debt and risk management strategies such as debt exchanges and debt buy-backs to manage and reduce government refinancing risks.

Sierra Leone was continuing to prioritize the mobilization of grants over loans and ensure that new borrowings meet the concessional threshold of a minimum of 35 percent grant element.

Ethiopia implemented a medium-term debt management strategy from 2016-2020 which helped in assessing the cost and risk of borrowings and ensured debt sustainability.

Habtamu Alamayo, Programme Officer, Ministry of Finance, Ethiopia, said despite challenges, such as poor export performance, low FDI inflows, and political stability, Ethiopia was eyeing opportunities in mobilizing additional external resources exclusively from concessional sources and public-private partnerships.

The workshop is expected to develop a roadmap that will support countries to better apply debt management techniques and implement requisite policies.

GAROWE ONLINE