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Sub-Saharan Africa countries accumulating debts with drop in oil price

COUNTRIES around the Sub-Saharan region, including Nigeria are accumulating debts because of the drop in oil price, a report has said.

According to the report, “How much should Sub-Saharan African countries adjust to curb the increase in public debt?   published by the World Bank,  the average public debt increased by half from 40 to 59 percent of Gross Domestic Product (GDP) over the period 2010 and 2018.

It indicated that public debt as a percent of GDP has at least doubled in more than a quarter of sub-Saharan African countries, among which are Angola, Cameroon, Equatorial Guinea, and Nigeria.

The report identified weak debt management systems, combined with important debt transparency issues, weak macro-fiscal management, greater reliance on costlier and riskier source of financing, and adverse negative shocks as factors for the accumulation of public debt in SSA.

“Are we worried about debt levels in Africa, yes because 40 percent of the countries have gone into debt distress levels,” it quoted the newly appointed International Monetary Fund (IMF) Managing Director Kristalina Georgieva as said.

According to the IMF boss, “SSA countries, as well as other low and lower-middle-income countries, should dedicate efforts to sustain their public debt by improving the quality of debt transparency and management.”

Similarly, it also stressed the issue of hidden debts in the sub-Saharan region, noting that “Each case of hidden debt affects the credibility of the government, distorts the risk assessment, policy surveillance, and sovereign debt pricing.”

As of August 31, 2019, 18 low-income countries in the region were in debt distress or high risk of debt distress under the joint World Bank-International Monetary Fund Debt Sustainability Framework.

Nigeria’s debt portfolio released by Debt Management Office (DMO) stood at N26.21 trillion as at September 20, 2019.

Recall that Nigeria’s Minister for finance Zainab Ahmed said the Federal Government has approached the China-Exim bank for another $17 trillion loan.

African Development Bank (AFDB) and the IMF have held back in giving out more loans to Nigeria, which is why the Federal Government approached China, according to the minister.

How should the sub-Saharan (SSA) countries adjust?

As a way out, the report recommended that Sub-Sahara Africa countries need significant fiscal efforts to keep their debt-to-gross domestic product (GDP) ratio constant.

The debt-to-GDP ratio is the ratio between a country’s government debt and its gross domestic product.

It stated that the fiscal (government revenue, especially taxes) effort required is significant and represents up to 2 percent of GDP for the majority of the SSA countries.

SSA countries can aim to achieve a debt level consistent with an investment grade in the long-term, it said.

Fiscal effort required in the short-run will be more meaningful and painful, but such a fiscal adjustment will ensure sustainable gains in the long-run.

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