Debt over-hang: Economists warn countries in W/African sub-region
By Udeme Clement
Economic experts have warned Nigeria and countries within the West African sub-region on excessive borrowings, saying such practice makes the countries to spend huge resources in loan services and can lead to debt over-hang if not checked.
The Director General, West African Institute for Financial and Economic Management, WAIFEM, Dr. Baba Musa and Prof. Douglason Omotor, also with WAIFEM, made this known while presenting a paper on, ‘External debt, capital inflows and economic growth in West African countries’, at the tenth annual conference on regional integration in Africa, organised by WAIFEM in collaboration with African Political Economy Association (APEA), Centre for Research on Political Economy (CREPOL), West African Monetary Institute (WAMI) and other partners, in Lagos.
According to them, “For ECOWAS generally, the external debt to export ratio indicates that the region may already be turning at the corner of insolvency and debt overhang. Information provided in Debt Sustainability Framework (DSF) and levels of domestic debts should be considered in future debt discussions in the region.
“In 2013, Nigeria’s ratio of external debt service payments as percentage of export stood at 12.7 percent and rose to 45.7 percent in 2016.
“Debt service payments have also increased since 2010 and may not fall in the nearest future. On the average, West Africa spent an average of 17 percent of its revenue to service external debt in 2018. For example, Ghana falls into similar category like other West African countries, with debt service accounting for 40 percent of revenue.
“Loans, like China’s Belt and Road Initiative (BRI), which often entails lending to sovereign borrowers to fund infrastructural development, have less stringent conditions to access but associated with high risk and difficult terms in repayment. There are enormous social and economic costs associated with servicing and repaying external debts. Very worrisome is the severity of debt burden when perceived in the light of the very small production base and low capacity of many African countries to meet their debt service obligations.”
Also speaking, the Co-President of APEA, Mr Oladele Omosegbon said lack of infrastructure development is one of the challenges that countries in the sub-region must give needed attention.
The Co-President of APEA explained that infrastructure development when adequately funded will enhance growth in various sectors of the economy.
A professor of Economics and ex-Director General of WAIFEM, Akpan Ekpo advised countries to source funds from African Development Bank and other sources with less stringent conditions of payment.
He called on countries within the sub-region to adopt Public Private Partnership (PPP) approach in handling infrastructure projects, in order to reposition the region for greater economic prosperity.
Other papers presented at the conference include transport and ICT infrastructure development in ECOWAS sub-region, development funding in Africa, migrant remittance inflow and financing Africa’s infrastructure among many others.