Africa unveils debt ‘observatory’

The African Union (AU) has announced that it will launch a debt status data bank to monitor and advise member states on potential financial distress. The decision, made in Addis Ababa, will aid member states in improving their fiscal governance as the continental body pursues development programs across its members. The AU Commissioner for Economic Development, Trade, Tourism, Industry and Mineral, Albert Muchanga, explained that the data bank would serve as a debt observatory to monitor the fiscal situations of African countries in real-time and act as an early warning system. The timeline for implementation was not specified.

The AU’s decision marks its first move towards monitoring fiscal situations, as the continental body has traditionally focused on political instability. However, with African countries owing at least $696 billion to external creditors, the AU’s new approach aims to help member states avoid defaults by providing a comprehensive understanding of their fiscal situations. The majority of the external debt comes from borrowing to finance infrastructure, social programs, and budgetary deficits.

Some African countries, including Zambia, have been struggling with repayment. The Zambian Finance Minister, Situmbeko Musokotwane, told the news conference that his country needs proper repayment arrangements to avoid defaulting. The Zambian government owes $17 billion in external debt, with $6 billion owed to China. In 2020, Zambia became the first African country to default on debt in the Covid-19 era. However, the government of President Hakainde Hichilema has been working with creditors such as China and Eurobond holders to restructure their debts.

On Friday, the AU and the African Development Bank (AfDB) discussed inclusive growth for African economies, with a focus on the questions of debt, hunger, and poverty. According to Prof Kevin Urama, AfDB’s acting chief economist, debt is not inherently bad, but Africa has taken on “bad debts.” He further stated that Africa is not heavily indebted, but bad debts are the real problem. The AfDB and its partners recently launched a program to improve food productivity on the continent and will continue training on fiscal management as the AU aims to improve value-addition on agricultural processing. The bank raised $1.5 billion for agricultural interventions, targeting African farmers with quality seed and fertilizers.