KAMPALA — Looming debt crises in Africa and other developing countries, climate change and the incoming World Bank President are expected to dominate the annual meetings of the World Bank and the International Monetary Fund, IMF.
This year’s meetings that start today afternoon come at the time that most developing countries, most of them in Africa including Uganda, are experiencing high debt burdens, with many either at or approaching crisis levels.
Ghana, Malawi, Zambia, Mozambique, and Tunisia are among the 10 most indebted countries by GDP ratio in Africa.
In East Africa, Kenya and Rwanda have recently seen their debt levels climb to more than 60 per cent of the economies, while Burundi, Uganda and Tanzania also recorded ratios just above 40 per cent. Uganda’s total debt in 2022 was estimated at 21 billion US Dollars as opposed to revenue collections of just 6 billion.
“In addition, debt servicing in 2022 consumed one of the most significant portions of the budget, at 30 per cent or an equivalent of 1.2 billion US Dollars,” according to the Economic Policy Research Centre. This situation is what worries experts about the sustainability of Uganda’s debt. It is even made worse by the fact that commercial debt, mainly from China is increasingly dominating the debt burden because it is expensive.
Analysts have specifically blamed the IMF for the sharp rise in the indebtedness of Africa and other developing economies over the last three years, with credit facilities purported to help the countries cover the financial gaps left by the COVID-19 pandemic.
“We discuss the complex challenges facing the world and priority issues for policymakers, including inflation, debt, and protecting the vulnerable. We’ll also suggest the way forward,” says IMF Managing Director Kristalina Georgieva.
Georgieva and World Bank President David Malpass acknowledge that Africa is “facing a tremendous financial crunch” and that years of accumulation of unsustainable debt are holding back development.
Some countries spend as much as 40 per cent of their revenues on debt servicing.
As part of her proposed way forward, the IMF head will “call on countries in strong financial positions to give back some of their Special Drawing Rights , so that the firm can lend to African countries at concessional rates.”
However, this is also seen as worsening the situation by borrowing to pay off loans. Her statement also stresses the need to increase domestic revenue mobilisation, which basically means either increasing taxes or looking for more people to tax. The meetings are also expected to be dominated by debate on climate financing.
African leaders and global climate activists have been calling on the developed nations to honour their pledge to commit more funds to Africa for climate programmes. The wealthy countries committed 13 years ago to raise 100 billion dollars for poor countries annually, but no more than half has ever been met.
And this is one of the main challenges facing the person who will replace Malpass as World Bank President later this year. Malpass, who announced he will be stepping down almost a year before his term naturally ends, prides in what he calls record levels reached by the Bank in funding climate activities.
“Including on major commitments to adaptation, we reached 32 billion US Dollars in climate finance this past year, a record that was above our Glasgow (COP 26) target,” he told the conference of parties in Egypt. The IMF/World Bank meetings in Washington DC are also expected to debate the new WB president.
Ajaypal Singh Banga, an Indian-born US business executive is highly expected to be endorsed by the WB Board weeks after the annual meetings. And whether or not on agenda, the heads of international lending institutions and central banks as well as Ministers for finance among other dignitaries should be concerned about the growing influence of the Chinese currency on world trade.
The Yuan has recently increased its share of global trade transactions to 15 per cent compared to 25 per cent done in the US Dollar, while countries like Russia, Brazil and Saudi Arabia are increasingly taking on trading using the yuan. It will be of interest to both rich and poor nations to see how this trend is likely to affect the debt market as well as international trade.
“This year’s Annual Meeting will explore the need for global governance reform and the ways in which the International Financial Institutions can evolve to meet the economic, geopolitical, and cross-border challenges of the new era,” says Georgieva.