GOVERNMENTS and private entities borrow to finance investments, which are key for sustainable development, as well as, for covering short-term cash flow imbalances, which periodically occur as a result of mismatch between revenues and expenditures.
Africa's debt stock owed to external creditors as at year 2021 stood at US$644,9 billion, a significant rise from US$443 billion in 2013. External debt service is projected to cost US$68,9 billion in 2023.
This external debt owed by African countries is equivalent to 24% of their combined Gross Domestic Product (GDP).
In the past, the majority of African external debt was owed to official creditors – high income countries and multilateral lenders like World Bank (WB) and International Monetary Fund (IMF).
This has now shifted, China and other private lenders make up a significant portion of the debt stock, meaning that a large portion of debt is non-concessional, potentially attracting high interest charges.
Apart from external debt, these countries have ballooning domestic debt, which is crowding out productive sector financing and resultantly inhibiting growth.
Many developing countries particularly those in the Global South are in debt stress and several other countries of the world are saddled with huge external debt exposures hampering their hopes for future development.
Many analysts, including international lending institutions have varied views when it comes to the issue of debt stress. They attribute debt stress to poor economic management, rampant corruption, weak governance systems and weak oversight institutions on the part of borrowing nations.
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Can this be true? How can all these countries on the African continent and in other parts of the globe be deemed failures in terms of managing borrowed resources?
Kenyan President William Ruto is on record saying that the international financial architecture is rigged, and its rigged against the Global South. I cannot agree with him any better.
The economic policy prescriptions that are recommended for implementation in this part of the world by the International Monetary Fund (IMF) are never prescribed for the West, even during worst financial crisis in the West.
In their observations, Ismael Vaccaro, Eric Hirsch and Irene Sabaté identified debt as a governing tool, and that the lending institutions, states, financial institutions, corporations and non-governmental organisations that have jurisdiction over this debt have the power to reshape individuals, communities, societies to the extent of reshaping their civil and political status.
It means in some instances debt can be used as a technology or instrument of power. In a debt arrangement, there exists the debtor-creditor relationship.
It should be natural cause that both debtor and creditor should enter into a debt agreement with equal powers and the inherent risks to the agreement must be more or less equal.
The reality with Africa's debts is that while debtors are struggling with economic issues at home to have their material needs satisfied, creditors are well connected to global markets with many options to diversify or minimise risks.
Given these circumstances, one wonders whether the relationships between debtors and creditors in these debt arrangements are in good faith especially when indebted subjects lack technical knowledge and when access to crucial information about the very nature of their debts and the interest charges involved is denied.
In many instances debtors are put under severe pressure to repay and they forego the provision of essential services to their citizens in order to meet this moral obligation.
These conditions are deliberately created to weaken borrowers and as a result they become perpetual beggars, and the lender assumes the position of “the Master.”
In my view, inappropriate financial structures that are created by international lending institutions together with their conditionalities are the major causes of under development in Africa.
These borrowings have subjected Africans to perpetual misery and are hampering every effort to fight poverty in the continent.
They are a “trap" and once a country enters into debt that country will not be able to come out of it.
It is a form of control mechanism, a horse and rider relationship where obviously the lender is the rider.
Countries are then forced to restructure loans after failing to pay under a new set of conditions.
And the next thing they are forced to implement austerity measures or some structural adjustment policies which by their nature are painful to citizens.
Under these austerity measures, countries will be forced to cut on welfare expenditures, reduce the public service, subjecting millions of people into unemployment and people becoming destitutes. Today an average of 18% of Africa’s population in Sub-Sahara is living in abject poverty.
I want to describe this kind of financial architecture as “inappropriate financial capitalism” because it is premised on exploitation, discrimination and financial expropriation. For the West, its imperial influence has moved from colonial control to a modern financial power.
Inappropriate financial capitalism
It is one of the primary causes of perpetual poverty in Africa. To the lenders, debt has become a governance as well as a profiteering tool.
Through this financial architecture, the multilateral lenders have created a debt society made up of indebted citizens who are increasingly the subjects to the dynamics of finance, Susanne Soederberg shared the same views.
I see debt here containing some governmental instruments. Subjects are disciplined through indebtedness and through promises and fabricated abundance; and in the event that they fail to pay, they are subjected to threats of sanctions and punishment. There is obviously some structural violence exerted on people’s lives and their livelihoods as a result of these inappropriate financial structures.
High debt levels weaken the purchasing power of a national currency and as a result prices of goods and services become unaffordable to the majority of citizens.
In some countries citizens have gone to the extent of staging demonstrations and protests due to rising cost of living. In Japan and the Asian Tigers, suicides became common during the financial crisis.
In Africa, millions of citizens have left for Europe and America to perform menial jobs for self sustenance because their home economies have failed them.
Again on the downside, Africa has become the cheap supplier of labor to the West and the North because its economies are breeding poverty and there is no hope for recovery. Meanwhile, IMF through its Staff Monitoring Programmes continues to prescribe different sets of austerity measures to countries, giving them false hope that the Fund will resume lending upon satisfaction of certain conditions.
Through inappropriate financial capitalism the West is benefiting in many ways – profiteering, continued control of debt society and cheap migrant labor.
What is the way forward?
A new form of monetary system – a Pan-African monetary system is needed.
At a collective level, Africa can build robust infrastructures - roads, railways systems and communication systems that facilitate trade and development.
And therefore a payment system that facilitates trading and that is acceptable throughout the continent must be established. A monetary fund for the African community, resourced by Africa member states and controlled by Africa will solve most of Africa's problems.
There must be concerted effort to reduce or eliminate the current over-reliance on the American dollar for settlement of payments by African States.
We need to rethink on the role of money in shaping or destroying our African societies. There is more than just empirical evidence to show that inappropriate financial capitalism is as an instrument of power and control by some super powers and if it remains unchecked, the indebted subjects- Africans will continue to be relegated to weak elements – another form of slavery. Those who control money can pursue a policy both at home and abroad contrary to citizen expectations, (Clement Artilee, former United Kingdom Prime Minister)
- Dr Nyashanu writes in his personal capacity. — +263772989148.