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IMF WARNS AGAINST FAILURE TO SERVICE PUBLIC DEBT

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MBABANE - The International Monetary Fund (IMF) has warned African countries, including Eswatini, that their increasing indebtedness and failure to service their public debts was creating poverty for its citizens.


Montfort Mlachila, senior resident representative for IMF in South Africa, said that countries like Zimbabwe, Eritrea, and Mozambique were facing worrying levels of debt and as the IMF they were concerned about the situation in these countries.


“One of the key challenges African countries face is the rapid increase in public debt levels, which in turn mean that they are spending more and more money on servicing the debt at the expense of more socially and economically useful activities such as investment in infrastructure,” Mlachila said as quoted by Engineering News yesterday.


As at July 31, 2018, preliminary debt figures indicate that total public debt stood at E12.9 billion, an equivalent of 20.7 per cent of GDP.
This reflects that total public debt has remained steady over the past month as E12.9 billion was also recorded in June 2018.
At the end of July 2018, external debt stood at E5.2 billion, an equivalent of 8.5 per cent of GDP. 


Central Bank of Eswatini, whose Governor is Majozi Sithole, reported that this showed that external debt remained unchanged in the month under review.
While payments were made on external loans, the movements have not been significant to warrant a change in the debt levels, especially since the Lilangeni strengthened against the USD and other major currencies in which the country’s liabilities are denominated.
“Domestic debt stood at E7.7 billion at the end of July 2018, an equivalent of 12.4 per cent to GDP. Domestic debt remained unchanged when compared to the previous month,” said CBS.
Of the outstanding domestic debt, E5.1 billion accounts for bonds, E2.3 billion accounts for treasury bills and the remaining E0.3 billion accounts for Promissory Notes.
While commercial banks continued to dominate participation in government securities on the shorter end of the yield curve, non-bank financial institutions dominate on the longer term securities.
The IMF, as stated in the Engineering News, recommended that to: address this challenge there is a need for countries to create the necessary fiscus space notably by increasing the domestic resource mobilisation, in other words, broadening their tax base so that they can capture a lot more revenues that are needed to address this challenge.
“Also, governments need to invest in better managing their own investments because significant proportion money is wasted through all kinds of inefficiencies due to bad management,” it was stated.  
Sidelines
Mlachila was reportedly speaking on the sidelines of the last day of the Infrastructure Africa Business Investment Forum in Sandton. He said that if African countries did not find creative ways of managing their debt, this could result in poverty levels being prolonged longer than necessary.
“There are quite a few countries facing high levels of debt, they are either in debt distress or they are already having serious problems of managing their debt. Zimbabwe is an obvious example, and Eritrea where the debt is distress and they are spending more money on day-to-day management of the country on recurrent expenditure rather than spending money on investment,” Mlachila added.
An economist, who preferred anonymity, concurred with IMF’s advice. He emphasised that it remained important to generate other revenue streams in order to avoid accumulation of debt to alarming levels.
“As a country our debt levels are not yet at the point where it could lead to an economic crisis but should be closely monitored going forward,” the economist advised. 

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