UN commission warns Africa over foreign loans

Economic commission described the condition created by countries that invest in foreign bonds as "imported inflation".

Wednesday January 27 2016

Mauritanian President Mohamed Ould Abdel Aziz (right) delivers a speech at the 22nd African Union summit in Addis Ababa on January 31, 2014. Africa is facing increased debt repayments especially for countries that have borrowed in foreign markets, the UN's Economic Commission for Africa (ECA) has warned. AFP PHOTO | SOLAN GEMECHU

Mauritanian President Mohamed Ould Abdel Aziz (right) delivers a speech at the 22nd African Union summit in Addis Ababa on January 31, 2014. Africa is facing increased debt repayments, especially for countries that have borrowed in foreign markets, the UN's Economic Commission for Africa has warned. AFP PHOTO | SOLAN GEMECHU 

By HENRY OWUOR
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ADDIS ABABA

Africa is facing increased debt repayments, especially for countries that have borrowed in foreign markets, the UN's Economic Commission for Africa (ECA) has warned.

But the continent is likely to enjoy greater growth in 2015, propelled by increasing public investments, especially in infrastructure, and a buoyant services sector.

The ECA noted the key role of the African Union and regional bodies in promoting political stability on the continent, in a briefing held in Addis Ababa on Tuesday ahead of the 26th AU summit later this week.

Africa, the ECA said, is a recipient of climate-change effects while its contribution to climate change is minimal, at a mere one per cent.

Giving the briefing, Mr Adam Elhiraika, the director of the Macro Economic Policy Division at the ECA, described the condition created by countries that invest in foreign bonds as "imported inflation", but he noted that a country with strong macroeconomic fundamentals should be able to handle its debts.

He added that countries that continue to borrow abroad need to adopt policies that would allow them to pay back the money without compromising their macroeconomic climate.

GROWTH RATES

West and East Africa, said the ECA, are growing at the fastest rate while southern Africa had the least growth in 2015, at a mere 2.5 per cent.

The ECA expert, who was accompanied by Mr Jim Ocitti, the director of the Public Information and Knowledge Management Division at the UN's Addis office, noted that political instability continues to damage economies on the continent, citing the case of Libya and Somalia.

In eastern Africa, Mr Elhiraika said, "political uncertainty and instabilities in South Sudan and Burundi and terrorist threats in Kenya and Somalia weigh on the region".

In West Africa, the damage caused by Ebola is still evident in Guinea, Liberia and Sierra Leone.

The UN expert said China, Africa's key trading partner, continues to enjoy growth at 6.9 per cent, which is high enough as it adds the equivalent of Turkey's economy to its economy every year.

In much of Africa, said Mr Elhiraika, inflation pressure was reduced by lower global oil prices in 2015 and the continuing fall of food prices while currency depreciations have increased the risk of imported inflation.

But prudent monetary policy in countries such as South Africa and Kenya has had a moderating impact on inflation rates.

Inflation was highest in 2015 in West Africa at 8.6 per cent, up from 7.5 in the previous year, driven by the depreciation of the euro, leading to the depreciation of the CFA franc.

PUBLIC SPENDING

Public spending in Nigeria in the lead-up to its elections also contributed to inflationary pressure in the sub-region together with the pressure on the naira caused by lower oil prices.

He said inflation in West Africa is expected to remain at about 8.4 per cent in 2016 and 2017.

Drought in parts of Africa, especially in Ethiopia, could have adverse effects on the economy but the impact is expected to be less than in the early years because the economy is more resilient.

The ECA expert called on African countries to invest more on rural economies.

One of the factors impeding growth in Africa, noted the ECA, is weak employment growth and high unemployment that pose challenges to poverty reduction, decent work and the realization of the 2030 agenda for sustainable development.

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