Governors of the central banks of Nigeria and Kenya, in agreement with the International Monetary Fund (IMF), are expressing concerns over increasing debts in the continent. This is owing to the fact that the level of government debt in sub-Saharan Africa has doubled in the past decade and accumulated debt would cause economic imbalance and stunted economic growth.
Godwin Emefiele, governor of the Nigerian Central Bank, had warned last month that rising debt and a lack of fiscal buffers could endanger economic growth. Similarly, Kenya’s Central Bank Governor, Patrick Njoroge, stated in an interview last week that the East African nation was running out of room to increase its credit load.
According to Colin Coleman, the former CEO of Goldman Sachs Group Inc. in sub-Saharan Africa, the IMF and other credit rating companies “are sending a warning to policymakers that if your debt levels become unsustainable, then it is going to have consequences on growth and the financial environment and that raises monetary risks.”
For approximately two years, the IMF and credit rating companies have advised African governments about the dangers of growing too much debt as their revenues decline. However, the continent has experienced devastating inflation that was triggered by a fall in oil prices, natural disasters and problems with insurgency and war in some areas.
This may account for why African governments run to debt markets to pay for infrastructure and wages of civil servants. Nevertheless, public debt as a percentage of gross domestic product in sub-Saharan Africa has doubled to more than 50 percent since 2008, IMF data show.
A news report shows that about 40 percent of governments on the continent face difficulties honouring their obligations. It also revealed that the African Development Bank is less worried and said last week it doesn’t see a systemic debt crisis on the continent.
However, this puts the central bank in a complicated spot. Last year, IMF’s Africa Department Director, Abebe Aemro Selassie, said that rising government debt crowds out lending to the private sector and weakens the transmission of monetary policy to boost demand. Also, lowering interest rates in countries with rising debt levels could add pressure to local currencies by prompting foreign investors to leave in search of higher-yielding securities elsewhere.
African governments should create financial policies that would be less focused on borrowing from international financial institutions; policies that would strengthen their efforts to diversify their economies, make investment opportunities available for Africans in diaspora (like Ghana and Ethiopia), a means of generating foreign revenues.