‘ESWATINI, AFRICA IN DANGER OF DEBT DISTRESS’

MBABANE - Several African countries including Eswatini are in danger of defaulting due to governments’ rising debt-servicing costs and high arrears.

This is according to a new report compiled by the European Investment Bank (EIB). The report was also published by one of South Africa’s publications, Business Day yesterday.

The EIB report highlights that the high level of public debt is leaving a number of states vulnerable to external shocks and reduces or blocks access to external financing. Zooming in on Southern Africa, where Eswatini is based,  the report said  economic developments in the region in recent years were generally characterised by low growth, increasing fiscal deficits and sharply rising public debt levels, saying the expected recovery remained vulnerable.

“Deficits have remained at over 8 per cent of GDP in Eswatini (formerly Swaziland), 6.5 per cent in Mozambique and South Africa, and about 5 per cent in Malawi, Namibia and Zambia. On the other hand, Angola and Seychelles ran a surplus. Overall, the decline in public deficit is likely to continue very gradually, reaching 2.7 per cent of GDP in 2023,” stressed the report.
When presenting his budget speech last month, Minister of Finance Neal Rijkenberg had said arrears owed by government accumulated over several years indicating a pattern of unsustainable public expenditure.

payments

“An arrears clearance strategy has been prepared to address the delayed payments to suppliers of goods and services, and a special committee has been established to implement this strategy. In addition to this, I am pleased to announce that we have a plan to clear the arrears,” said the Minister.

Meanwhile, Mozambique and Zimbabwe have been in debt distress for some time. The International Monetary Fund (IMF) classifies the risk of debt distress in Zambia as very high and the risk in Comoros, Lesotho, Madagascar and Malawi as moderate.
On the bigger picture, the continent’s total external debt burden has reached nearly US$500bn.

“ Public debt levels are high and rising in most African economies, with the median ratio of  government debt to GDP climbing to more than 56 per cent in 2018, up from 38 per cent 10 years earlier, according to a recent report by the African Development Bank (AfDB),” reads the report.

The IMF defines debt distress as when a country is struggling to service its debt, the evidence of which can be seen in rising arrears and debt restructuring.

In February, the AfDB dismissed suggestions by World Bank president David Malpass that together with other development banks it has a tendency to lend too quickly and in the process add to the continent’s debt crisis.

The AfDB said it provided a strong governance programme for its regional member states that focused on public financial management, better and transparent natural resources management, sustainable and transparent debt management, and domestic resource mobilisation.

The EIB report, titled ‘Banking in Africa: Financing Transformation amid Uncertainty’, analyses recent developments in the African banking sectors.

report

 Based on both macroeconomic and survey data, the report addresses structural issues and investment opportunities in Africa and frames policy options for all stakeholders.

 “Fiscal consolidation is reducing the pace of debt accumulation. However, the high level of public debt leaves several states vulnerable to external shocks and reduces or even blocks access to external financing,” the report states.

Furthermore, fiscal consolidation and the uptick in growth are reducing budget deficits across the Southern Africa region. The average budget deficit amounted to about 3.8  per cent of GDP in 2019, down from about 5 per cent in 2016.

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