Africa is facing a new debt crisis-Prof Adam

20Feb 2020
James Kandoya
Dar es Salaam
The Guardian
Africa is facing a new debt crisis-Prof Adam

TANZANIA is among three countries in sub -Saharan Africa which are classified as either ‘in debt distress’ or at high risk of falling into ‘debt distress’, according to Oxford University lecturer Prof Christopher Adam.

Oxford University lecturer Prof Christopher Adam.

Prof Adam said on Tuesday in Dar es Salaam at a public lecture entitled “Is Africa Facing a New Debt Crisis? The event was organised by the Institute of Finance Management (IFM).

He said other countries are Senegal and Uganda and those at high debt distress were Cameroon, Ethiopia and Zambia while Gambia, Mozambique and South Sudan were in distress.

The don named some countries including Tanzania has put much focus on domestic borrowing, in deed it is good decision because it goes directly to build infrastructures that will give returns, ”he said.

“However, on doing so it must ensure that domestic borrowing does not crowd out financing for private sector projects which is one of the engines of the county economy, ”he advised

The don said countries must borrow due to some differences in some of public infrastructures designed to boost growth and the trade balance.

Others are sums involved are too great to be met solely from taxation – could be infrastructure projects (standard gauge railway) or ‘human capital’ (investment in schools and hospitals.

Another factor was new resource discovery that requires exploratory investment. He detailed that what matters is not the absolute amount of debt but its level relative to the income of the country (GDP) and whether the economy as a whole can generate the resources to service the debt.

According to him, the difference is between the total cost of imports (used in consumption and investment) and all other sources of financing such as exports, aid flows, remittances and reserves.

Prof Adam said further that it order to re-stabilize (or reduce) external debt-to-GDP, the country’s GDP growth must increase.

Moreover, the cost of borrowing must fall and/or and the trade balance needs to increase meaning there must be more exports compared to imports.

For his part, Dr Mohamed Suleiman from the IFM who was the chairman, said the public lecture was part of the institute’s role to conduct public lectures to share experiences and knowledge.

“It is not the first time, the institute had conducted such a public lecture, adding that more such lectures will come, ”he said.

“An over-reliance on commercial public debt exposes sovereign balance sheets to greater rollover and exchange rate risks. Also, an increase in debt from domestic creditors could crowd out financing for private sector projects,” according International Monetary Fund (IMF).

So far Kenya, Uganda and Tanzania are among the top 50 countries in the world that are highly indebted to China, according to US-based research firm Brookings Institution.