The All Africa Conference of Churches - Liaison Office at the African Union organized an African Continental Consultation Workshop from the 3rd – 5th December 2019, with the theme “Advancing Human Dignity through Influencing / Advocacy”.
The purpose of the consultation was to facilitate a reflection on the African context – Geopolitics & its socio economics, and challenging participants on how to remain the salt and the light of the world in prevailing situations; Explore how AACC and AACC constituency can best do advocacy at national and continental level including towards intergovernmental structures on the continent such as the African Union and its structures (Regional Economic Blocks) while exploring synergies in advocacy work of the church in Africa to name a few. AFRODAD addressed church leaders on “The New African Debt Crisis & deficits in sound economic governance”. The new debt crisis facing African countries is different from the first crisis the region experienced in the 1980s and 1990s. The debt crisis of the past was of a multilateral and bilateral nature. Debt owed to multilateral financial institutions mainly the International Monetary Fund (IMF), World Bank (WB) and the African Development Bank (AfDB). These International Financial Institutions (IFIs) due to the pressure from the Jubilee Movement (Church) and citizens came up with two debt relief initiatives: Highly Indebted Poor Countries Initiatives (HIPC) in 1996 and the Multilateral Debt Relief Initiative (MDRI) in 2005. Over 30 African countries benefited from debt cancellation due to HIPC and MDRI. Some African countries are yet to benefit from these debt relief initiatives.
The looming New African debt crisis is of a different nature. Private/commercial debts are growing as a share of total external debt in a number of African countries. This is as a result of access to international capital markets by middle income African countries such as Zambia, Ghana, Namibia, Senegal, and Cameroon. As of January 2019, a total of US$92 billion debt was contracted by African countries, all in hard currencies. Private sector debt comes with many risks and when poorly managed or utilized, it has great ability to take many countries into a debt distress and eventually crisis. Almost all African countries are contracting debt from new lenders such as China. These debts are contracted in secrecy since terms and conditions are not transparent since loans contract are not made public. As at 31 July 2019, the IMF reports that 37% of Sub-Saran countries are either in debt distress or in risk of debt distress. Within the Africa region, Mozambique, Somalia, Sudan and Zimbabwe are some of the countries already in debt distress
Majority of African countries are borrowing to finance development expenditure such as construction of roads and power stations. But some are borrowing for political purposes, such increasing expenditure before an election. Such funds are normally used for unproductive purposes to please the electorate prior to elections.
Many African countries therefore now face significant risks of declining growth & deteriorating living conditions, with the poor & vulnerable (who need health, education, etc. the most) bearing the brunt of the economic decline. Reduced social spending compromises the quality of human capital and debt distress is also usually accompanied by an escalation of taxes, which places on a higher cost-of-living burden on the population. Infrastructure spending cuts reduce prospects for industrial development, industrialization and economic transformation. Debt distress usually implies cutting back on key social sector & infrastructure expenditures in an attempt to avoid defaulting on debt service repayments.
Loan information should be made public including value of the loan, fees, charges and interest, legal implications and any available information on use of proceeds and the payment schedule.
Strong legislation for debt management is crucial to promote greater transparency, accountability and well-defined roles and responsibilities.
- Parliament should approve loans before contracts are signed so as to ensure that the loan contraction process is done within the established guidelines and laws – purpose, terms and conditions.
- An effective and responsible Parliament must mitigate risks of excessive and unproductive borrowing by reinforcing the countervailing mechanisms of government accountability and legislative scrutiny.
- Parliament must resist loan conditionality by donors and international financial institutions because this causes parliament to be accountable to the lender and not to their own citizens and thus undermining the principle of ownership.
The Church, together with civil society, needs to recommend to government to work on increasing domestic resource mobilization. No country can sustainably depend on external resources for its own development. As such, national budgets should be funded from own revenue.
Strong macroeconomic fundamentals remain a sine qua non for this, as do improvements in the investment climate, better institutional quality, and better governance.
The role of the Church in averting a new debt crisis
- The Church has a role in the economic governance of our countries. The Church has a moral obligation to speak out on bad governance. For countries to move to prosperity, there is need to implement a sustainable fiscal framework designed to contain wasteful expenditure and reduce the budget deficit and growing indebtedness.
- The Church need to demand transparency and accountability in debt management. It is crucial that regular comprehensive debt reports must be produced and shared so that there is no room for hidden debts, such as the Mozambique case.
- The Church need to speak out against corruption. If debt is financing corrupt projects then countries will enter a big debt problem. The Church need to call for implementation of legally binding fiscal rules – debt rules - that will guide when and how much to borrow. These can even have a punitive measure on officials breaching the rules.
- The Church need to mobilize its billion followers and make demands on government for prudent debt management.
- The change need to advocate for prudent debt management through engaging the national, regional and African Union – Pan-African Parliament. Parliaments are mandated to hold Government officials accountable for the spending of public funds and stewardship over public resources.