The African Union (AU) is pitching what it touts as a local solution to survive mounting debt for members. And the proposals could be tabled to member states as soon as the next summit, signalling the latest concerns about the potential of debt to drain economic targets.
The revelations emerged last week at a conference on debt in Dakar, Senegal where officials explained the policy direction.
Dr Patrick Dzana Olomo, the Policy Officer for Investment and Resource Mobilisation, Economic Affairs Department of the African Union Commission blamed Africa’s mounting debt on failure to put in place clear mechanisms on how to handle borrowed funds.
“As the AUC, we are setting up the African Debt Mechanism that will be adopted next year which will be a platform that will allow us to have information on debt and also to plan on how countries will engage in debt negotiations before getting the loans,” said Dr Olomo at the ‘African Conference on Debt and Development’, an annual forum.
While the decision to establish some form of debt observatory was announced earlier this year, African Union members are expected to adopt it from January 2024 to be in line with AU’s Agenda 2063.
“It will also guide African countries on how they are going to engage in discussions when it comes to debt treatment. The AUC is playing that economic role of bringing together African countries to address issues related to debt,” said Olomo.
Experts in Dakar said Africa needs some form of profile table for creditors and debtors, enabling both sides to decide how to extend privileges.
Dr Ohio Omiunu, a professor of international law at Kent Law School (UK) and an editor at the AfroconmicsLaw, a portal on public investments policy, said the debt crisis requires a mechanism that brings all creditors on the debt table.
“Another option is the need to have a mechanism that is binding on all creditors. Currently the common framework does not bring the private creditors on the table,” said Dr Omiunu.
“Debt forgiveness should also be one of the options on the table. We have just come out of the Covid pandemic and therefore the very reason we need to bring the debt forgiveness on the table.”
Africa currently stands at the crossroads of two pressing challenges: a mounting debt crisis, and the urgent need for financing to combat climate change.
Rising rates are hurting some of its brightest economic stars as the rich countries renege on their promises to help fight debt.
As of 2022, Africa owed above $600 billion to external creditors, with an approximate $69 billion in debt service by the end of 2023.
Previously Africa’s sovereign debt was mostly acquired through loans from IFIs and bilateral lenders.
Since last year, five countries (Zambia, Ghana, Chad, Ethiopia, and Sri Lanka) formally defaulted on their national debt and applied to the G20’s Common Framework to resolve their debt crisis.
Across the continent several countries are beginning to show similar symptoms that indicate either defaulting or needing to apply to G20 Common Framework, some debt relief project by the richer lenders.
“Debt has risen cumulatively to over a trillion US dollars on the continent and this is quite a significant amount when you think about where the continent lies in social economic indicators,” said Jason Rosario Braganza, Executive Director of the African Forum and Network on Debt and Development.
Civil society leaders also called for proper utilization of debt to avoid using debt for recurrent expenditure rather than for development.
“We need to use our debt to develop infrastructure, improve health, agriculture and education sectors rather than waste on projects that largely attract corruption.”
In the just concluded Nairobi Climate Change summit, President William Ruto appealed to richer countries to reduce financial demands on very indebted African countries by calling for the extension period for countries’ debt repayments.
“We don’t want to suggest we want a debt write-off. No, we want to pay. One way would be to allow debt repayments to be extended and for a decade-long grace period to be introduced, allowing money to be invested elsewhere so that instead of spending billions of dollars paying debt this year, we use that to do other things. And then in 10 years we would have stabilised our economies,” said Ruto.