Patrick Njoroge, former governor of the Central Bank of Kenya, has highlighted strategies that African countries should adopt when sourcing funding for their economies.
Njoroge, in an exclusive chat with Arise News noted that African countries should be ready to source funding from all possible sources, either commercial or bilateral. Using China’s investment in US treasury bills as an example, he noted that African countries should be “friends of all and satellites of none.”
When asked about the best model of engagement for Africa, he noted, “There is no one direction, it’s a univariate thing because it is multi-dimensional. We need to source funding from all possible sources, commercial, bilateral, from the West and the East.”
According to Njoroge, countries should start looking out for themselves by sourcing for financing with the most favourable conditions.
“The principle for deciding should be, which is the cheapest for this specific funding for this project. And the cheapest is not just interest rate, it’s also currency, and the big issue, how do you repay? Is it a bullet or gradual repayment?”
Since 2020, African countries have been faced with a wave of debt distress considering the economic fallout of COVID-19. These debt crises forced many countries and their creditors (bilateral and commercial) to reform their relationships with debt restructuring agreements taking centre stage in most of the engagements.
According to a report by the United Nations Development Programme (UNEP), between 2000 and 2018, China committed around $148 billion in loans to Africa, while bilateral debts to members of the Paris Club declined to less than 7 percent. The report further highlighted a significant decline in concessional debt sources for African countries, with the median interest payment-to-revenue ratio rising from approximately 5 percent in 2013 to 10 percent in 2017.
Read also: Africa to the world: Age of average over — Njoroge
Concessional debt sources were one of the highlights of Njoroge’s engagement with Arise News, noting that concessional funding should be a priority for African leaders.
In response to the economic fallout from COVID-19, initiatives were introduced by multilateral lenders to help borrower countries reduce their debt burdens. The International Monetary Fund (IMF) established the Catastrophe Containment and Relief Trust (CCRT), which granted approximately $339 million in debt relief to 23 of Africa’s poorest and most vulnerable countries.
The Debt Service Suspension Initiative (DSSI) was also introduced. The initiative provided a moratorium on debt service payments owed to participating bilateral creditors from May 2020 to June 2021 for 38 eligible African countries, potentially resulting in savings of $11.2 billion. To coordinate the debt relief efforts under this initiative, the G20 Common Framework was introduced.
Since 2020, African countries have been on a spree of debt restructuring agreements with their bilateral and commercial lenders, majorly in bids to fulfil the conditions for IMF bailouts. Zambia, Ghana, and Ethiopia have been pursuing debt restructuring using G20’s Common Framework.
In Nigeria’s case, as of the first quarter of 2024, the country had an external debt profile of $42.115 billion, with the bulk of this sum in Eurobonds. Nigeria’s largest bilateral lender was China with a loan profile of about $5.05 billion.
Making a case against fuel subsidies, Njoroge highlighted Nigeria’s government expenditure on fuel subsidies relative to its spending on health and education. He noted that such an expenditure was not an investment into the country’s future.
He said, “Here in Nigeria, we used to spend about 2 percent of GDP on fuel subsidies. How much was government spending on health or education? On education, it was about 0.4 percent of GDP, and that’s the average for five years to 2022. And for health, it’s also less than half a percentage point. If you put those two together, it’s less than 1 percent.
“And we think this is the next generation we’re investing in? We need to have expenditure, not just expenditure for the sick but proper expenditure that has an impact on the population, on health and social capital.”
According to data from the Nigerian Extractive Industries Transparency Initiative (NEITI), Nigeria spent around $74.4 billion on fuel subsidies between 2005 and 2021.
