African governors discuss concerns over rising debt

The governors of a number of African central banks debated the serious challenge that Africa’s rising debt could pose to financial stability at an annual congress last week, with most believing that rising borrowing will foster growth on the continent.

The topic of debt sustainability in Africa was a key discussion point at the Association of African Central Banks’ 42^nd ordinary meeting in Rwanda.

The host country’s prime minister Édouard Ngirente – who gave the opening address at the conference – said while debt needs to be treated responsibly, borrowing was encouraging economic growth throughout Africa.

He added that growing debt was a global phenomenon, but African countries may be more vulnerable due to African reliance on commodity exports. A total of 19 countries in Africa are currently above the 60% debt-to-GDP threshold set by the African Monetary Co-operation Programme.

Some central bank governors stressed the need to prepare proper policy responses related to debt management. “As the debt levels increase we need to have more policy buffers, it is essential for us to have more policy buffers rather than wait for rainy days when things go wrong and then begin to deal with it,” said Central Bank of Kenya governor Patrick Njoroge.

But John Rwangombwa, governor of National Bank of Rwanda, said it was unfair to single out debt exposure to China – which is not a signatory to the Paris Club – as particularly burdensome. The “noise” related to African debt to Chinese entities is “unfounded”, he said. While African countries would prefer to borrow internally to reduce foreign exchange risks, many face financing gaps that make borrowing from countries such as China necessary, Rwangombwa added.

The Bank of Tanzania’s governor, Florens Luoga, meanwhile, issued a warning about placing an overreliance on investment from the West. “The tradition of looking to the West for loans to invest in infrastructure is a bit of a weakness on the part of African countries”, he said.

Rwanda’s Rwangombwa also stressed a message of African co-operation that was heard throughout the conference. He warned that as global trade tensions heighten, Africa could be caught in the crossfire of a weakening global economy. “It would not be far-fetched to say that if we, Africans, don’t act together we will easily be the ‘grass’ at the mercy of the feet of the two global giants fighting each other.”