In 2013, the African Development and Network on Debt on Development launched a document titled “AFRODAD Borrowing Charter” and the latter got recently revised from content to title, and it’s now referred to as: “The African Borrowing Charter”. But before delving more into the “charter:”
The history below is the reason AFRODAD firmly believes that this Borrowing Charter is so crucial!
African countries borrowed heavily during the 1970s supported by high commodity prices and the eagerness of commercial lenders to off-load their petrol-dollar surpluses. The deteriorating terms of trade and increasing interest rates did not deter African countries from borrowing during the 1980s driven by the need for development. The region during the 1980s had in the meantime experienced stagnation and even decreases in industrial output and exports.
By 1990, the African countries were under debt stress and unable to service the loans. The inability to service loans accumulated arrears which were capitalized. The debt stock had increased from US$ 9.9 billion in 1970 to US$ 271.9 billion by 1990. External debt as a percentage of GDP which was at 13% in 1970 had risen to 112.4%. The debt was unsustainable, as African countries were unable to repay current and future debt service obligations without recourse to debt rescheduling, debt relief or accumulation of arrears. The unsustainable debt burden contributed, among other things, to fiscal un-sustainability, a decline in social indicators, decline in industrial output and undermined development institutions. Broadly, it compromised poverty reduction efforts.
Debt relief was inevitable and was secured through debt cancellations by bilateral and multilateral donors through various initiatives and finally through the Heavily Indebted Poor Countries (HIPC) Initiative initiated in 1996 and the Multilateral Debt Relief Initiative (MDRI) initiated in 2005. Post HIPC efforts saw a decline in the debt burden in 26 African countries from a GDP weighted average of 104% down to 27% in 2006. Debt relief was secured through concerted lobby and advocacy efforts of African governments, African and global civil society movements. One key point to remember here is that the larger part of the debt was owed to bilateral governments and multilateral financial institutions.
Recent increases in borrowing from the new sources pose a risk largely because African countries are still fragile: they have weak infrastructure, narrow production bases, are mostly still highly dependent on commodities, have shallower financial markets, weak institutions (including project and debt management), limited administrative capacity, less efficient tax systems as well as weak legal frameworks. In more recent times a number of African countries have increasingly turned to issuing international sovereign bonds. The World Bank IDS (International Debt Statistics) show that Sub-Saharan African bonds issued to private creditors (without making the distinction on whether on domestic or international markets) rose from $18.3 billion in 2008 to $77.5 billion in 2016. It is estimated that around US$ 25 billion is set to mature in 2018 and some African countries are already contemplating seeking refinancing.
Fiscal instability has been a major feature of African economies directly related to debt issues. Lack of fiscal discipline in African countries has led to persistent budget deficits and mounting debt stock. Sub-Sahara Africa has equally shown a decline in budget transparency, participation and oversight. The Open Budget Survey of 2017 shows that of the 27 countries in Africa is less open about their fiscal activities than other countries in the world.
The Open Budget Survey of 2017 shows that of the 27 countries in Africa is less open about their fiscal activities than other countries in the world. In the Open Budget Index 2017 Sub-Sahara Africa scored 29 as compared to 73 by Western Europe and United States of America. Lack of transparency and accountability contributes to persistent budget deficits and debts.
- Sustainably balance public debt levels with the necessity to accelerate inclusive development and enhance public service delivery; contributing to improvement in the transparency of the political, institutional and administrative processes uses; accountability of state actors involved; and;
- Ensuring that the contraction and management of public debt, including the issuance of public guarantees, selection and implementation of debt financed projects and formulation and execution of overall fiscal policy taken place within the context of a strengthened legal framework and rule of law.
AFRODAD plans to launch it in different African countries and present it to the African Union and other relevant bodies with the aim of having it endorsed as an authoritative, legal guiding Charter for governmental borrowing.
Simplified from the African Borrowing charter.