Geza Ulole
JF-Expert Member
- Oct 31, 2009
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This week's IMF
Experts warn of Africa’s new debt crisis
WEDNESDAY JANUARY 17 2018
Research by the UK-based Jubilee Debt Campaign last year showed that debt payments by poorer countries had increased by 50 per cent in two years, and had reached their highest level since 2005. FOTOSEARCH
In Summary
By PAUL REDFERN
More by this Author
Concern is growing that 2018 could be the year that sub-Saharan Africa sees a new debt crisis, nearly 20 years since the last one was said to have been resolved.
The reason why African debts has risen is simple. Since the world financial crisis of 2008, there has been a boom in lending to low- and lower-middle-income country governments which more than quadrupled from $57 billion (Ksh5.9 trillion) in 2007 to $260 billion (Ksh26.8 trillion) by 2016.
This increase came about because quantitative easing and low interest rates in the western world mean that lenders have wanted to give more loans to developing countries where they can charge higher interest rates.
Now, however, global interest rates are rising and poorer countries are finding it tough to pay back money borrowed from banks in anticipation of a commodity windfall that never materialised.
The result, a massive upswing in the level of debt owed by African governments. In East Africa, Kenya’s debt burden as percentage of GDP is 32 per cent, Uganda’s 57 and Tanzania 63 per cent.
But the African country most affected is Mozambique on 299 per cent of GDP.
Of debts owed by low and lower middle income governments, 38 per cent are owed to private lenders, 36 per cent are owed to multilateral institutions, primarily the World Bank, IMF and regional development banks such as the African Development Bank, and 26 per cent are owed to other governments.
Research by the UK-based Jubilee Debt Campaign last year showed that debt payments by poorer countries had increased by 50 per cent in two years, and had reached their highest level since 2005.
The debt crisis of the 1980s, 1990s and early 2000s was triggered by a fall in the price of commodities and rise in US interest rates.
History seems to be repeating itself as since 2014 the IMF’s commodity price index has fallen by more than 40 per cent, and the US dollar has risen in value by 15 per cent.
Experts warn of Africa’s new debt crisis
Vs Nov 2017 report
Public debt weighs on East African economies
TUESDAY NOVEMBER 7 2017
A resident of Lamu County in Kenya carries a sack of relief food in March following prolonged drought in most parts of the country. FILE PHOTO | AFP
In Summary
By NJIRAINI MUCHIRA
More by this Author
Runaway public debt is expected to continue casting a shadow on sub-Saharan African economic growth as most countries redirect dwindling revenue to debt servicing instead of development.
Despite economic growth in the region being on the rebound, driven by rising commodity prices and improved food security, a significant increase in public debt in recent years remains a threat to sustainable growth.
According to the International Monetary Fund, the pressure of public debt coupled with a slowdown in credit flows to the private sector is holding back economic growth.
In its latest Regional Economic Outlook report, the IMF observes that the median level of public sector debt in sub-Saharan Africa rose from about 34 per cent of gross domestic product in 2013 to 48 per cent in 2016 and is expected to exceed 50 per cent in 2017.
This has meant increased debt service costs with the median debt service-to-revenue ratio increasing from five per cent in 2013 to almost nine per cent in 2016; it is expected to reach nearly 10 per cent this year.
“Debt-servicing costs are becoming a burden, especially in oil-producing countries. In Angola, Gabon and Nigeria they absorb more than 60 per cent of government revenues,” said the report.
Negative trend
In Kenya, the ratio of public debt to GDP stood at 52.6 per cent last year and is expected to increase to 56.2 per cent this year while Tanzania’s increased from 37.4 per cent to 38.3 per cent while in Uganda, it rose from 38.6 per cent to 39.9 per cent.
Credit growth to the private sector, on its part, has decreased from 18.6 per cent on average in 2011-2013 to 11.2 per cent in 2014-2016.
This negative trend has accelerated in recent months, with private sector credit contracting in real terms in 18 countries between March 2016 and March this year.
In East Africa, the slowdown in credit to the private sector has been attributed to the weakening of credit demand due to the inability by clients to service outstanding debt, a tightening of credit qualifying standards by banks and, in the case of Kenya, the impact of the capping of bank interest rates.
East African countries, however, have seen an easing of inflation, which remained subdued after it temporarily picked up at the beginning of the year following a drought-induced spike in food prices.
In Kenya, food price inflation increased from 11.2 per cent in December 2016 to peak at 21.5 per cent in May this year, and headline inflation stayed above 7.5 per cent but has since declined to 5.72 per cent last month following a drop in food prices.
In Uganda and Tanzania, inflation has stabilised around the 5 per cent target, while in Rwanda it has averaged 7.5 per cent in recent months.
According to the report, the economic slowdown in sub-Saharan Africa is easing although the underlying situation remains difficult.
Depressed oil price
This year, growth is expected to reach 2.6 per cent, up from 1.4 per cent last year driven a recovery in oil production in Nigeria and the easing of drought conditions in East and Southern Africa.
“Growth in the region is expected to pick up further in 2018 and reach 3.4 per cent, but ongoing policy uncertainty in Nigeria and South Africa hinders a stronger rebound and growth is not expected to increase further in 2019,” the report adds.
Excluding Nigeria and South Africa, the average growth rate in the region is expected to be 4.4 per cent in 2017, rising to 5.1 per cent in 2018-19.
Public debt weighs on East African economies
Vs October 2017
Looming risks as Kenya, Tanzania debt levels on the rise
TUESDAY OCTOBER 24 2017
Kenya’s Treasury Cabinet Secretary Henry Rotich on his way to parliament to present the 2017/2018 budget in March. The country’s borrowing costs are driving government indebtedness high. PHOTO FILE | NATION
In Summary
By ALLAN OLINGO
More by this Author
Kenya took on more than $7.6 billion in debt over the past year to June 2017 as the country faced low growth prospects as a result of drought and a political impasse.
In the same period, Tanzania’s debt rose by $1.12 billion. The country’s external debt stock increased from $17.73 billion in the preceding quarter to $18.49 billion in June, largely on account of new disbursements.
Domestic debt increased by $358.62 million over the quarter to $5.2 billion at the end of June 2017.
“Central government borrowing from the banking system declined by 21 per cent in net terms, compared with an increase of 41.1 per cent in the year ending June 2016. This reflects building-up of government deposits at the Bank of Tanzania, following improvement in domestic revenue collection, streamlined expenditure and realisation of non-concessional borrowing,” the Bank of Tanzania said in its second quarter report.
Data from Kenya’s Treasury released last week shows that the country’s debt rose to $41.91 billion to June 2017, from $34.33 billion at the end of June 2016,comprising 52.1 per cent in external debt and 47.9 per cent in domestic debt.
Treasury attributed the rise to increased external debt from exchange rate fluctuations, and disbursements from external loans debt.
“The net public debt increased by $7.24 billion, from $30.52 billion at the end of June last year to $37.77 billion at the end of June this year,” Kenya’s Treasury said in the review.
Its stock of domestic debt rose by $2.82 billion to $20.06 billion in June 2017 from $17.26 billion last year. Treasury bills made up most of the external debt at $9.49 billion.
The stock of Treasury bills held by the Central Bank, commercial banks, non-banking financial institutions and non-residents increased by $1.48 billion to $7.07 billion over the same period.
READ: Why Kenya’s $40b debt is worrying observers
Budget presentation
The rise in Kenya’s domestic debt goes against what Treasury Cabinet Secretary Henry Rotich said during last year’s budget presentation.
During the reading, Mr Rotich said that the government would reduce the percentage of local debt as it realigned towards foreign markets for financing. He said government borrowing would be cut by $1.55 billion in 2016/17, but this was not achieved.
“We are more inclined to tap into the international markets than the domestic to finance the deficit. We are still favouring the international markets because of the concessional terms. We are very cautious on this, and will direct the funds received to development projects,” Mr Rotich said at the time.
Kenya’s external public debt stock increased by $354 million, from $1.78 billion in June 2016 to $2.13 billion by end of June 2017. Debt stock comprised of multilateral lenders at 38 per cent, bilateral lenders at 32.7 per cent, and commercial banks at 28.6 per cent.
Between March and June this year, Kenya’s external public debt went up by $960.6 million, from $2.04 billion to $ 2.13 billion.
Early this month, two credit rating agencies, Moody’s and Fitch, said they expect Kenya’s debt to rise to 60 per cent of GDP by mid-next year.
High budget deficits
According to Moody’s, Kenya’s debt burden, which stood at 56.4 per cent of GDP in June this year, is expected to continue rising due to high budget deficits and interest payments.
With accumulating debt, Moody’s is now considering lowering Kenya’s credit rating.
“Unless a decisive policy response is introduced, the upward trajectory in government debt will see debt-to-GDP ratio surpass the 60 per cent mark by June 2018. Due to the erosion in government revenue intake in the past five years and increased recourse to debt from private sources on commercial terms, government debt affordability has deteriorated,” said Moody’s.
Kenya has taken up commercial debt, which has seen its interest payments rise to 19 per cent of its revenues, up from 10.7 per cent when President Uhuru Kenyatta’s administration came to power.
Moody’s also raised the red flag over the country’s high loan repayments, which may lead to Kenya sourcing additional expensive debt. In the year to June, the total cumulative debt service payment to external creditors was $896.8 million, comprising $341.4 million as principal and $555.3 million as interest.
Looming risks as Kenya, Tanzania debt levels rise
MY TAKE
There is definitely an error Tanzania’s debt to GDP ratio is not 63%
https://autosplus.me/cheapest-cars-...can&utm_campaign=ap-cctoao&utm_term=ap-cctoao
Experts warn of Africa’s new debt crisis
WEDNESDAY JANUARY 17 2018
Research by the UK-based Jubilee Debt Campaign last year showed that debt payments by poorer countries had increased by 50 per cent in two years, and had reached their highest level since 2005. FOTOSEARCH
In Summary
- Since the world financial crisis of 2008, there has been a boom in lending to low- and lower-middle-income country governments which more than quadrupled from $57 billion (Ksh5.9 trillion) in 2007 to $260 billion (Ksh26.8 trillion) by 2016.
- This increase came about because quantitative easing and low interest rates in the western world mean that lenders have wanted to give more loans to developing countries where they can charge higher interest rates.
- Research by the UK-based Jubilee Debt Campaign last year showed that debt payments by poorer countries had increased by 50 per cent in two years, and had reached their highest level since 2005.
By PAUL REDFERN
More by this Author
Concern is growing that 2018 could be the year that sub-Saharan Africa sees a new debt crisis, nearly 20 years since the last one was said to have been resolved.
The reason why African debts has risen is simple. Since the world financial crisis of 2008, there has been a boom in lending to low- and lower-middle-income country governments which more than quadrupled from $57 billion (Ksh5.9 trillion) in 2007 to $260 billion (Ksh26.8 trillion) by 2016.
This increase came about because quantitative easing and low interest rates in the western world mean that lenders have wanted to give more loans to developing countries where they can charge higher interest rates.
Now, however, global interest rates are rising and poorer countries are finding it tough to pay back money borrowed from banks in anticipation of a commodity windfall that never materialised.
The result, a massive upswing in the level of debt owed by African governments. In East Africa, Kenya’s debt burden as percentage of GDP is 32 per cent, Uganda’s 57 and Tanzania 63 per cent.
But the African country most affected is Mozambique on 299 per cent of GDP.
Of debts owed by low and lower middle income governments, 38 per cent are owed to private lenders, 36 per cent are owed to multilateral institutions, primarily the World Bank, IMF and regional development banks such as the African Development Bank, and 26 per cent are owed to other governments.
Research by the UK-based Jubilee Debt Campaign last year showed that debt payments by poorer countries had increased by 50 per cent in two years, and had reached their highest level since 2005.
The debt crisis of the 1980s, 1990s and early 2000s was triggered by a fall in the price of commodities and rise in US interest rates.
History seems to be repeating itself as since 2014 the IMF’s commodity price index has fallen by more than 40 per cent, and the US dollar has risen in value by 15 per cent.
Experts warn of Africa’s new debt crisis
Vs Nov 2017 report
Public debt weighs on East African economies
TUESDAY NOVEMBER 7 2017
A resident of Lamu County in Kenya carries a sack of relief food in March following prolonged drought in most parts of the country. FILE PHOTO | AFP
In Summary
- Despite economic growth in the region being on the rebound, a significant increase in public debt in recent years remains a threat to sustainable growth.
- In latest Regional Economic Outlook report, the IMF observes that the median level of public sector debt in sub-Saharan Africa rose from about 34 per cent of gross domestic product in 2013 to 48 per cent in 2016 and is expected to exceed 50 per cent in 2017.
- In East Africa, the slowdown in credit to the private sector has been attributed to the weakening of credit demand due to the inability by clients to service outstanding debt.
By NJIRAINI MUCHIRA
More by this Author
Runaway public debt is expected to continue casting a shadow on sub-Saharan African economic growth as most countries redirect dwindling revenue to debt servicing instead of development.
Despite economic growth in the region being on the rebound, driven by rising commodity prices and improved food security, a significant increase in public debt in recent years remains a threat to sustainable growth.
According to the International Monetary Fund, the pressure of public debt coupled with a slowdown in credit flows to the private sector is holding back economic growth.
In its latest Regional Economic Outlook report, the IMF observes that the median level of public sector debt in sub-Saharan Africa rose from about 34 per cent of gross domestic product in 2013 to 48 per cent in 2016 and is expected to exceed 50 per cent in 2017.
This has meant increased debt service costs with the median debt service-to-revenue ratio increasing from five per cent in 2013 to almost nine per cent in 2016; it is expected to reach nearly 10 per cent this year.
“Debt-servicing costs are becoming a burden, especially in oil-producing countries. In Angola, Gabon and Nigeria they absorb more than 60 per cent of government revenues,” said the report.
Negative trend
In Kenya, the ratio of public debt to GDP stood at 52.6 per cent last year and is expected to increase to 56.2 per cent this year while Tanzania’s increased from 37.4 per cent to 38.3 per cent while in Uganda, it rose from 38.6 per cent to 39.9 per cent.
Credit growth to the private sector, on its part, has decreased from 18.6 per cent on average in 2011-2013 to 11.2 per cent in 2014-2016.
This negative trend has accelerated in recent months, with private sector credit contracting in real terms in 18 countries between March 2016 and March this year.
In East Africa, the slowdown in credit to the private sector has been attributed to the weakening of credit demand due to the inability by clients to service outstanding debt, a tightening of credit qualifying standards by banks and, in the case of Kenya, the impact of the capping of bank interest rates.
East African countries, however, have seen an easing of inflation, which remained subdued after it temporarily picked up at the beginning of the year following a drought-induced spike in food prices.
In Kenya, food price inflation increased from 11.2 per cent in December 2016 to peak at 21.5 per cent in May this year, and headline inflation stayed above 7.5 per cent but has since declined to 5.72 per cent last month following a drop in food prices.
In Uganda and Tanzania, inflation has stabilised around the 5 per cent target, while in Rwanda it has averaged 7.5 per cent in recent months.
According to the report, the economic slowdown in sub-Saharan Africa is easing although the underlying situation remains difficult.
Depressed oil price
This year, growth is expected to reach 2.6 per cent, up from 1.4 per cent last year driven a recovery in oil production in Nigeria and the easing of drought conditions in East and Southern Africa.
“Growth in the region is expected to pick up further in 2018 and reach 3.4 per cent, but ongoing policy uncertainty in Nigeria and South Africa hinders a stronger rebound and growth is not expected to increase further in 2019,” the report adds.
Excluding Nigeria and South Africa, the average growth rate in the region is expected to be 4.4 per cent in 2017, rising to 5.1 per cent in 2018-19.
Public debt weighs on East African economies
Vs October 2017
Looming risks as Kenya, Tanzania debt levels on the rise
TUESDAY OCTOBER 24 2017
Kenya’s Treasury Cabinet Secretary Henry Rotich on his way to parliament to present the 2017/2018 budget in March. The country’s borrowing costs are driving government indebtedness high. PHOTO FILE | NATION
In Summary
- Data from Kenya’s Treasury released last week shows that the country’s debt rose to $41.91 billion to June 2017, from $34.33 billion at the end of June 2016,comprising 52.1 per cent in external debt and 47.9 per cent in domestic debt.
- According to Moody’s, Kenya’s debt burden, which stood at 56.4 per cent of GDP in June this year, is expected to continue rising due to high budget deficits and interest payments.
- Moody’s also raised the red flag over the country’s high loan repayments, which may lead to Kenya sourcing additional expensive debt
By ALLAN OLINGO
More by this Author
Kenya took on more than $7.6 billion in debt over the past year to June 2017 as the country faced low growth prospects as a result of drought and a political impasse.
In the same period, Tanzania’s debt rose by $1.12 billion. The country’s external debt stock increased from $17.73 billion in the preceding quarter to $18.49 billion in June, largely on account of new disbursements.
Domestic debt increased by $358.62 million over the quarter to $5.2 billion at the end of June 2017.
“Central government borrowing from the banking system declined by 21 per cent in net terms, compared with an increase of 41.1 per cent in the year ending June 2016. This reflects building-up of government deposits at the Bank of Tanzania, following improvement in domestic revenue collection, streamlined expenditure and realisation of non-concessional borrowing,” the Bank of Tanzania said in its second quarter report.
Data from Kenya’s Treasury released last week shows that the country’s debt rose to $41.91 billion to June 2017, from $34.33 billion at the end of June 2016,comprising 52.1 per cent in external debt and 47.9 per cent in domestic debt.
Treasury attributed the rise to increased external debt from exchange rate fluctuations, and disbursements from external loans debt.
“The net public debt increased by $7.24 billion, from $30.52 billion at the end of June last year to $37.77 billion at the end of June this year,” Kenya’s Treasury said in the review.
Its stock of domestic debt rose by $2.82 billion to $20.06 billion in June 2017 from $17.26 billion last year. Treasury bills made up most of the external debt at $9.49 billion.
The stock of Treasury bills held by the Central Bank, commercial banks, non-banking financial institutions and non-residents increased by $1.48 billion to $7.07 billion over the same period.
READ: Why Kenya’s $40b debt is worrying observers
Budget presentation
The rise in Kenya’s domestic debt goes against what Treasury Cabinet Secretary Henry Rotich said during last year’s budget presentation.
During the reading, Mr Rotich said that the government would reduce the percentage of local debt as it realigned towards foreign markets for financing. He said government borrowing would be cut by $1.55 billion in 2016/17, but this was not achieved.
“We are more inclined to tap into the international markets than the domestic to finance the deficit. We are still favouring the international markets because of the concessional terms. We are very cautious on this, and will direct the funds received to development projects,” Mr Rotich said at the time.
Kenya’s external public debt stock increased by $354 million, from $1.78 billion in June 2016 to $2.13 billion by end of June 2017. Debt stock comprised of multilateral lenders at 38 per cent, bilateral lenders at 32.7 per cent, and commercial banks at 28.6 per cent.
Between March and June this year, Kenya’s external public debt went up by $960.6 million, from $2.04 billion to $ 2.13 billion.
Early this month, two credit rating agencies, Moody’s and Fitch, said they expect Kenya’s debt to rise to 60 per cent of GDP by mid-next year.
High budget deficits
According to Moody’s, Kenya’s debt burden, which stood at 56.4 per cent of GDP in June this year, is expected to continue rising due to high budget deficits and interest payments.
With accumulating debt, Moody’s is now considering lowering Kenya’s credit rating.
“Unless a decisive policy response is introduced, the upward trajectory in government debt will see debt-to-GDP ratio surpass the 60 per cent mark by June 2018. Due to the erosion in government revenue intake in the past five years and increased recourse to debt from private sources on commercial terms, government debt affordability has deteriorated,” said Moody’s.
Kenya has taken up commercial debt, which has seen its interest payments rise to 19 per cent of its revenues, up from 10.7 per cent when President Uhuru Kenyatta’s administration came to power.
Moody’s also raised the red flag over the country’s high loan repayments, which may lead to Kenya sourcing additional expensive debt. In the year to June, the total cumulative debt service payment to external creditors was $896.8 million, comprising $341.4 million as principal and $555.3 million as interest.
Looming risks as Kenya, Tanzania debt levels rise
MY TAKE
There is definitely an error Tanzania’s debt to GDP ratio is not 63%
https://autosplus.me/cheapest-cars-...can&utm_campaign=ap-cctoao&utm_term=ap-cctoao
