Africa must increase transparency to ease debt stress, Lesetja Kganyago says
The SA Reserve Bank governor has emphasised the need for countries ‘to borrow smarter and not see debt as a replacement for domestic revenue mobilisation’
African countries can mitigate growing worry over debt sustainability by increasing transparency and strengthening the development of their local capital markets SA Reserve Bank governor Lesetja Kganyago said on Friday.
“There is growing concern that many African countries are once again at risk of debt traps,” Kganyago said at the launch of the Africa Debt Monitor, launched by the Collaborative Africa Budget Reform Initiative (Cabri).
Debt levels are not as high as they were at the peak of the African debt crisis of the 1980s and 1990s, Kganyago said. But the interplay between easier global financial conditions and the resultant “search for yield” from developed countries, and the appetite for debt financing from African countries, risks debt rising to unsustainable levels, he said
There is a positive correlation between financial transparency by governments and debt sustainability, Kganyago said, emphasising the need for countries “to borrow smarter and not see debt as a replacement for domestic revenue mobilisation”.
“When people say they have a debt problem ... the point of departure is wrong,” said Kganyago. “You have a fiscal problem. Because debt is the outcome of fiscal policies.”
The development of local currency bond markets increased countries’ ability to cope with volatile capital flows, reduced reliance on foreign borrowings and the risks related to large currency mismatches he said.
The International Monetary Fund has flagged 17 African countries that are either at high risk of debt distress or are in debt distress. They include SA's neighbours Zimbabwe and Mozambique.
According to Cabri’s sustainable public debt manager and bond market developer Johan Krynauw, although Africa country debt levels are high there are “small steps in the right direction”.
There is a growing focus on strengthening local capital markets by African countries, he said as well as regional ones. This is helping develop a greater diversity of investors coming to the continent, he added. There is also growth in investment by African retirement funds and insurers, enabling countries to raise debt that is denominated in local currency.
“For too long the debt was scaled to foreign currencies,” he said. “There is a move from foreign denominated [debt] to more local currency debt.”
Although the split between foreign denominated and local denominated debt remained at between 45% local and 55% foreign, “increasingly your local market is where your deep money is”, Krynauw said.
The ADM is an online tool that provides quantitative and qualitative information on the debt metrics of 20 African countries, which account for 48% of the continent’s total public debt and 50% of its GDP.
According to an ADM analysis, the use of stock exchanges to list government debt can increase the long-term marketability of a country’s debt more than 50%.