African Central Bank Governors are convening in Kigali beginning tomorrow to among other subjects deliberate on rising African sovereign debt levels and its implications on the monetary policy as well as financial stability. Debt levels are increasingly becoming a concern as the public debt of the African continent stood at 45 per cent of GDP at the end of 2017 compared to 29.1 per cent in 2013. According to the World Bank’s Africa Pulse 2017 report, 11 out of 35 low income countries in Sub-Saharan Africa (31.4 per cent of low-income countries) are classified as high risk of debt distress. John Rwangonbwa, the Governor of the National Bank of Rwanda (BNR), told The New Times that though Africa is not in a debt crisis, there are growing concerns and trends that if not addressed could become challenges. “On a continental level, 45 per cent average for the African continent might be lower than the rest of the world. Globally developing countries stand at around 266 per cent while emerging markets is around 168 per cent,” he said. However for the African continent, there are concerns such as its exponential rise over the years, as well as the nature of the loans. Previously a bulk of it was concessional loans but currently beginning 2009 many African markets having a mix of commercial debt. A concessional loan is credit that is extended on terms that are substantially more generous than market loans and are usually from international development financiers such as the World Bank and African Development Bank. The loans have low interest rates and long grace periods with the possibility of further review. On the other hand, commercial loans are not only expensive but have shorter payment durations. “We are not yet in a debt crisis. Some countries may have faced challenges. When we sat in the last meeting, we decided that since there was a lot of noise around debt, we thought that it’s important to look at it from a central bank perspective. To look at the extent of the risk and what can be done,” he said. The officials will also look into aspects such as the fact that since most of the debt is external there are often instances of currency mismatch. Often loans are for infrastructure projects and does not have immediate returns. He said that the conversations will consider aspects that African countries ought to get right to avoid being at risk as well aspects that could create better terms. The recent14th World Bank Rwanda Economic Update noted that Rwanda is one of only four countries in Sub-Saharan Africa with low risk of debt distress. The Bank rates countries’ risk of distress, which is categorised as high, moderate, in-distress, or low. Among attributes that have facilitated the development, the bank said include careful borrowing, proper loan management and high economic growth. According to the Ministry of Finance and Economic Planning preliminary results of the debt sustainability analysis, Rwanda’s present value debt to GDP reaching is around 32.9 per cent as of March this year and is below the critical EAC threshold of 50 per cent. The share of concessional loans in the total debt stock stood at 63 per cent as of end 2018. Both the World Bank and the IMF noted that Rwanda still has room to borrow more to finance development projects given that recent investments have shown a high return on investment. editor@newtimesrwanda.com
