banking

AfDB steps in to help region’s governments slowdown on their borrowing spree

November 14, 2021

The African Development Bank (AfDB) is working with countries in the region to prevent further debt accumulation by supporting the diversification of development financing sources.

Nnenna Nwabufo, the bank’s country manager at the East Africa Regional Development and Business Delivery office, said the region’s growth, which is projected to recover from the 0.4 percent growth in 2020 — brought on by effects of Covid-19 pandemic slowdown — is expected to hit an average of 4.1 percent in 2021, and that governments should now direct all efforts to reduce the public debt.

“Public debt in East Africa had been rising even before the onset of Covid-19, from 40 percent of GDP in 2011 to 67 percent in 2019,” Nwabufo said in an interview with The EastAfrican, after the release of the East African Economic Outlook 2021 report recently.

“The AfDB will support the diversification of development financing sources through governance reforms to crowd-in private investment and finance support to strengthen public-private partnership institutional and regulatory frameworks, enhancing domestic resource mobilisation, among others,” she said.

Slow GDP growth

She attributed the rising public debt to large infrastructure investments and a relative slowdown in real GDP growth.

The adverse impacts of Covid-19 drove debt to 73 percent of GDP in 2020 due to substantial nominal exchange rate depreciation in economies with large foreign currency debt, reduced commodity revenue inflows, and borrowing to finance emergency public spending in healthcare,” she added.

Countries in East Africa have high public debt. Government debt in the region is currently estimated at 72.5 percent of the region's GDP, up from 61 percent in 2020.

“We intend to work with governments in the region through governance reforms to crowd-in private investment and finance, support to strengthen public-private partnership institutional and regulatory frameworks, enhancing domestic resource mobilisation to reduce public debt,” said Nwabufo.

Some of the major projects supported by the bank are in the transport and energy sectors, including the dualling of the Malindi-Mombasa-Lunga-Lunga/Tanga-Bagamoyo road linking Tanzania and Kenya, valued at approximately $260 million.

Others are the Kagitumba-Kayonza-Rusumo road connecting Rwanda, Tanzania, and Uganda at a cost of $183 million, Ethiopia-Djibouti transport corridor at $248 million, and Rumonge-Gitaza/Kibondo-Kasulu-Manyovu road linking Tanzania and Burundi at $256 million.

Regional projects include the Ethiopia-Kenya electricity interconnection project at $25.38 million, the Kenya-Tanzania electricity interconnection project at $254.05 million, and the facility for energy inclusion at $84.02 million.

“The bank has two main financing windows — the African Development Fund and the Africa Development Bank — for the regional member countries,” Nwabufo said.

“The ADF is the more concessional of the two and is replenished every three years. The commitments already made by the bank’s donors under ADF-15 are not expected to change because of Covid-19.”

She however pointed out that political instability, security risks and limitations to resource mobilisation for transformative initiatives such as the Horn of Africa initiative are some of the key challenges facing the bank's performance.

According to the 2021 East Africa Economic Outlook, countries affected by political instability were among the hardest hit by the Covid-19 pandemic.

“Regarding funding, the Horn of Africa initiative comes at a time when the major development partners (African Development Bank, European Union, and the World Bank) are also allocating a lot of resources to countries to mitigate the impact of the Covid-19 pandemic, which could hold back the mobilisation of resources for this important initiative,” she said.

The bank has several special financing initiatives such as the Affirmative Finance Action for Women in Africa, single and multi-donor Trust funds, such as the Fund for African Private Sector Assistance (FAPA) grant and the Middle-Income Country Grant, which are used to complement the ADF and ADB financing windows.

theeastafrican



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