Economic Justice: The Role of The Church in Averting the New Debt Crisis in Africa

Published on 28th January 2020

The All Africa Conference of Churches - Liaison Office at the African Union organized a African Continental Consultation Workshop from the 3rd – 5th December 2019, with the theme Advancing Human Dignity through Influencing / Advocacy. 

The objectives of the consultation were:

•Reflecting together on the African context – Geopolitics & its socio economics, and challenging each other on how to remain the salt and the light of the world in prevailing situations.

•Exploring   together on how AACC and AACC constituency can best do advocacy at national, regional and continental level including towards intergovernmental structures on the continent such as the African Union and its structures (Regional Economic Blocks), and exploring synergies in advocacy work of the church in Africa.

•Validation of information collected for the AACC constituency Advocacy Directory of advocacy actors on the continent

The African Forum and Network on Debt and Development (AFRODAD) had the privilege to address the church leaders on The New African Debt Crisis & deficits in sound economic governance. The new debt crisis facing African countries is different from the first crisis the region experienced in the 1980s and 1990s. The debt crisis of the past was of a multilateral and bilateral nature. Debts owed to multilateral financial institutions mainly the International Monetary Fund (IMF), World Bank (WB) and the African Development Bank (AfDB). These IFIs due to the pressure from the Jubilee Movement (Church) and citizens came up with two debt relief initiatives; Highly Indebted Poor Countries Initiatives (HIPC) in 1996 and the Multilateral Debt Relief Initiative (MDRI) in 2005. Over 30 African countries benefited from debt cancellation due to HIPC and MDRI. Some African countries are still to benefit from these debt relief initiatives.

The looming New African debt crisis is of a different nature. Private/commercial debts are growing as a share of total external debt in a number of African countries. This is as a result of access to international capital markets by middle income African countries such as Zambia, Ghana, Namibia, Senegal, and Cameroon. As of January 2019, a total of US$92 billion debt was contracted by African countries, all in hard currencies. Private sector debt comes with many risks and when poorly managed or utilized has great ability to take many countries into a debt distress and eventually crisis.

Almost all African countries are contracting debt from new lenders such as China. These debts are contracted in secrecy. The terms and conditions are not transparent. Loans contract are not made public. As at 31 July 2019, the IMF reports that 37% of Sub-Saran countries are either in debt distress or in risk of debt distress. Within the Africa region, Mozambique, Somalia, Sudan, Zimbabwe are some of the countries already in debt distress.

Majority of African countries are borrowing to finance development expenditure such as construction of roads and power stations. But some are borrowing for political purposes, such as to increase expenditure before an election. Such funds are normally used for unproductive purposes to please the electorate prior to the elections.

Many African countries therefore now face significant risks of declining growth & deteriorating living conditions, with the poor & vulnerable (who need health, education, etc. the most) bearing the brunt of the economic decline. Reduced social spending compromises the quality of human capital. Debt distress is also usually accompanied by an escalation of taxes, which places on a higher cost-of-living burden on the population. Infrastructure spending cuts reduce prospects for industrial development, industrialization and economic transformation. Debt distress usually implies cutting back on key social sector & infrastructure expenditures in an attempt to avoid defaulting on debt service repayments.

Participants lamented the limited transparency and consultation in debt contraction process. There is lack of accountability in the management of debt in many debtor countries leading to debt funds not achieving their intended purposes in certain cases. Corruption is very rife in debt related funds and projects and this create burden to future generations.

Debt information transparency and accessibility allows citizens to subject lending and borrowing to more scrutiny. Information on loans to governments, or with a government guarantee, needs to be disclosed in one publicly accessible registry.

Loan information to be made public should include value of the loan, fees, charges and interest, the law the debt is owed under, any available information on use of proceeds and the payment schedule. It was noted that oversight bodies are not doing a proper job due to lack of capacity, legal role deliberately circumvented and political capture. Strong legislation for debt management is key to promote greater transparency, accountability and well-defined roles and responsibilities.

Parliament should approve loans before contracts are signed so as to ensure that the loan contraction process is done within the established guidelines and laws – purpose, terms and conditions. An effective and responsible Parliament must mitigate the risks of excessive and unproductive borrowing by reinforcing the countervailing mechanisms of government accountability and legislative scrutiny. Parliament must resist use of loan conditionality by donors and international financial institutions.  This causes parliament to be accountable to the lender and not to their own citizens and thus undermining principle of ownership.

The continent is rich in natural resources but these are exploited by outside investors and looted by our politicians. The conflicts we see in many African countries are fueled by natural resources and exclusion of other sections of the population.

The Church together with civil society need to recommend to government to work on increasing domestic resource mobilization. No country can sustainably depend on external resources for its own development. As such, national budgets should be funded from own revenue. Strong macroeconomic fundamentals remain a sine qua non for this, as do improvements in the investment climate, better institutional quality, and better governance. Accelerating structural transformation to move away from dependency on commodities.

The role of the Church in averting a new debt crisis

The Church has a role in the economic governance of our countries. The Church has a moral obligation to speak out on bad governance.  For countries to move to prosperity, there is need to implement a sustainable fiscal framework designed to contain wasteful expenditure and reduce the budget deficit and growing indebtedness.

The Church needs to demand transparency and accountability in debt management. It is crucial that regular comprehensive debt reports must be produced and shared so that there is no room for hidden debts, such as the Mozambique case.

The Church needs to speak out against corruption. If debt is financing corrupt projects then countries will enter a big debt problem. The Church need to call for implementation of legally binding fiscal rules – debt rules - that will guide when and how much to borrow. These can even have a punitive measure on officials breaching the rules.

The Church needs to mobilize its billion followers and make demands on government for prudent debt management.

The Church needs to advocate for prudent debt management through engaging the national, regional and African Union – Pan-African Parliament. Parliaments are mandated to hold Government officials accountable for the spending of public funds and stewardship over public resources.

By Tirivangani Mutazu

Senior Policy Analyst for Debt Management, The African Forum and Network on Debt and Development (AFRODAD)                                                                                                                                            

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