Mohloai Mpesi
SOUTHERN African Development Community (SADC) countries are grappling with high external debt levels.
The high debt issue took centre stage at a recent annual Regional Capacity Development Centre Southern Africa (AFRITAC – South – AFS) meeting, hosted by the Central Bank of Lesotho (CBL) at the Lehakoe Recreation and Cultural Centre in Maseru.
AFRITAC is a collaborative effort of the International Monetary Fund (IMF), and 13 Southern African countries who are beneficiaries of the Bretton Woods institute’s technical assistance programmes including training in public financial management.
AFRITAC-South?comprises 13 of 16 SADC countries including Lesotho, South Africa, eSwatini, Botswana, Zimbabwe, Namibia and Mauritius.?
Lesotho chaired the organisation’s steering committee over the last year.
The 2024 annual committee meeting of the AFRITAC-South was hosted and chaired by the First Deputy Governor of the Central Bank Lesotho (CBL), Lehlomela Mohapi.
However, because the chairmanship alternates alphabetically, it will be hosted and chaired by Madagascar in 2025.
The committee meets once annually to discuss member countries’ financial issues.
AFRITAC executive director, Suckwinder Singh, stated in his opening remarks, that Southern African countries were experiencing difficulties managing their external debt. ?
Mr Singh said this was a critical time for the region, after four successive years of difficult economic conditions, shocks and slow growth.
Lesotho was deep in the trenches with its overall external debt amounting to 60 percent of its Gross Domestic Product (GDP). That is a jaw dropper considering the country’s poor state of infrastructure in all critical sectors.
Mr Singh expressed grave concern over the management of external debt by the SADC states.
“We need to prioritise improving debt management. There are high costs of external borrowing. Access to financing is still constrained, it’s only in the last few months that access to European market was restored, after two years being closed to sub-Saharan Africa,” Mr Singh said.
“A lot of work must be done to develop the capital markets as well as improve external debt management. So, we have organised a panel here on those priorities to steer the discussions.”
The media, was however, not allowed to hear the rest of the discussions.
While Mr Singh noted that the inflation rate had gone down slightly in the AFRITAC – South region in 2024. According to AFRITAC – South website, inflation in the region’s countries, had declined from 15.3 percent to 13.7 in 2024. However, harkened to note that a lot of work still needed to be done, to address external debt management.
“We have seen immediate inflation rate coming down, some stabilisation of the rising debt ratios and evidence that some countries are beginning to consolidate deficit positions,” Mr Singh said.
“But there is a lot to be done including a very structural reform agenda, a lot of work in consolidating the fiscal position in a way that supports social development and growth, that’s one of the biggest challenges.”
He added: “….The frequency and cost of climate shocks in the region are a source for concern. And we?have been working on doing more?to incorporate climate risks into micro economic frameworks. We have been doing more work on strengthening governance. That’s the foundation of all improvements in policy making and we have been doing more work on leveraging digitisation in public finance.”
?First Deputy Governor of the CBL, Mr Mohapi, gave Kenya as an example of the ravages of high external debt levels.
Kenya is in the throes of a high debt crisis. It introduced a ??Finance Bill, 2024, to raise taxes to service debt. This has resulted in days of protests from citizens now plagued with high living costs. The government of President William Ruto has since been forced to reverse the Bill. ?
Mr Mohapi acknowledged that Sub-Saharan countries still faced serious challenges with high borrowing costs.
“Despite current geopolitical tensions and fragmentations, the fears around stagflations and global recessions have however subsided significantly,” Mr Mohapi said.
“Economic prospects are increasing and becoming better, inflation is improving, just only three of our members (Afritac -South) are still grappling with inflation.
“Government deficits, all the work we have done of conversion efforts, we seem to be getting it right now. But Covid-19 threw a spanner in the works and a number of fiscal balance indicators went south.”?
He added: “We are happy to see that at this point budget deficits are returning to sustainable levels in the south region, with an average of 3 percent?in the AFRITAC – South region.”
Mr Mohapi also noted that debt levels remained elevated although there seemed to be stability at around 60 percent of GDP in Lesotho.
“Despite improving stability metrics, a majority of our members still face funding squeeze in one form or another. They still face high borrowing costs and limited options for funding,” Mr Mohapi said.
“What this calls for, is improved domestic revenue mobilisation. And in light of the recent events in Kenya this is a very sensitive issue, we have to approach this very cautiously.”
“While we want to improve domestic revenue mobilisation, we want to do so by focusing on the gains that can be made around efficiency and buoyancy, not placing the burden on households whose balance sheets are at the moment stressed,” he said.
“The events of Kenya in the past two to three days are a perfect example of what happens when households with stressed balance sheets, facing high costs of pretty much everything, can do when you turn to them for extra revenue.
Speaking on behalf of Minister of Finance and Development Planning, Dr Rets’elisitsoe Matlanyane, was Minister of Education and Training, Professor Ntoi Rapapa, who highlighted the “continuing tight external financing conditions and high global interest rates, and a secular decline in official development assistance”, constrained the option for policy action.
“Credible medium-term fiscal anchors can be useful in guiding a path towards improved fiscal and debt sustainability. All this work needs to be underpinned by efforts to improve governance.”