The Sunday Mail
Sunday Mail Reporter
African governments have been urged to take a cautious approach to resource-backed loans, with experts saying while such arrangements present opportunities for development, they must be negotiated transparently and the money invested productively.
This came out at the third annual Zimbabwe multi-stakeholder debt conference in Harare, which ran from September 22-25.
Organised by the African Forum on Debt and Development (Afrodad), the conference drew participants from Government, civic society, the private sector and academia with a view to raising awareness on debt issues.
This is in line with a series of engagements being conducted by Afrodad and its partners as part of the organisation’s lobby to reform the global financial architecture, push for debt restructuring, and assist governments to borrow sustainably.
In a presentation on “Public Debt and Extractive Industries”, Ms Veronica Zano of Southern Africa Resource Watch said when contracting resource-backed loans (RBLs), governments would do well to borrow transparently and build in monitoring and oversight safeguards.
RBLs are loans provided to a government or a State-owned enterprise with repayment made in the form of natural resources.
“RBLs can potentially finance significant infrastructure investment at sometimes advantageous borrowing terms. However, RBLs have been generally negotiated through highly opaque deals, uncompetitive procedures and often carried out off-budget by poorly governed SOEs.
“Governments should take a cautious approach in taking RBLs. For example, first determining whether an RBL is the right financing tool to consider in the country’s financial and governance context,” said Ms Zano.
“African governments should ensure efficient and effective domestic resource mobilisation from the extractive industry through transparent and accountable governance.”
Turning specifically to Zimbabwe, Ms Zano said the country was endowed with a huge mineral resource base whose exploitation should be a key source of revenue for Government.
“If managed effectively, the additional fiscal space generated by this increased revenue can be used to promote growth . . . Zimbabwe’s mining sector is expected to be one of the key drivers for economic growth as it accounts for between 12 and 15 percent of annual Gross Domestic Product and is envisaged to potentially generate US$12 billion annually by 2023.”
Such resources, it was noted, could be used sustainably to resolve the country’s debt challenges and position the economy for meaningful growth and development.
According to the Mid-Term Budget Review, Zimbabwe’s external debt as of December 2020 was 71,2 percent of GDP at US$10,5 billion, while the domestic debt as of April 2021 amounted to $20,9 billion.
External debt arrears alone amount to over US$6,5 billion, which is about 77 percent of total foreign debt.
In his mid-term budget review, Finance and Economic Development Minister Professor Mthuli Ncube said Treasury had from March 2021 resumed quarterly token payments to creditors including the World Bank Group, the African Development Bank Group and the European Investment Bank.
The increased interest in debt management issues, driven by the economic distress caused by the Covid-19 pandemic, saw African civil society adopting the Harare Declaration of August 2021, an Afrodad initiative achieved through the 1st African Conference on Debt and Development.
Among other things, the declaration advocates for “reforming of the global debt architecture in a manner that equalises the loan contraction processes — including reform of debt sustainability frameworks and credit ratings assessment”.
It also calls on African governments to take the lead in developing a common position on sovereign debt “that definitively seeks to overcome, once and for all, the distressed nature of the sovereign debt, especially because it has procured and justified by a neo-liberal consensus inconsistent with the interests of African citizens”.
“We urge the African governments to consider measures such as debt cancellation seriously and, if necessary collective default as part of this new African position and consensus on African sovereign debt, while accelerating the building of new regional institutions such as the African Monetary Fund, an African Development Bank and an African Investment Bank — to increase African financial independence,” reads part of the declaration.
It calls on governments to ensure transparency and accountability in sovereign debt negotiations, borrowing and debt management as espoused in the African Borrowing Charter.
