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UN agency sounds alarm over Africa's growing foreign debt

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Countries that have borrowed abroad were cautioned to enact policies allowing them to pay without compromising their macroeconomic climate. PHOTO | FILE 

By HENRY OWUOR

Posted  Wednesday, January 27   2016 at  14:06

In Summary

  • Countries that continue to borrow abroad have been cautioned to put in place policies that would allow them to pay without compromising their macroeconomic climate.
  • West and east Africa are growing at the fastest rate while southern Africa had the least growth in 2015.

Africa is faced with increasing debt repayments especially those countries that have borrowed in foreign markets, the United Nation's Economic Commission for Africa (UNECA) warned Tuesday ahead of the 26th African Union (AU) summit that opens later this week in Ethiopia.

At the briefing in Addis Ababa Tuesday, Mr Adam Elhiraika - the director of Macro Economic Policy Division at UNECA - described the condition created by countries that invest in foreign bonds as "imported inflation" but 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 put in place policies that would allow them to pay without compromising their macroeconomic climate.

Greater economic growth

However, UNECA says increasing public investment especially infrastructure and a buoyant services sector will still propel the continent to greater growth this year.

West and east Africa, UNECA noted, are growing at the fastest rate while southern Africa had the least growth in 2015, at a mere 2.5 per cent.

The expert, who was accompanied by Mr Jim Ocitti, Director, 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, noted Mr Elhiraika, political uncertainty in South Sudan and Burundi as well as terrorist threats in Kenya and Somalia weigh on the region. Meanwhile in West Africa, the damage caused by the Ebola virus is still evident in Guinea, Liberia and Sierra Leone.

In much of Africa, says 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.

Shrewd monetary policies

He cited prudent monetary policy in countries such as South Africa and Kenya as having a moderating impact on inflation rates.

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

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.

UNECA expects inflation in West Africa to remain at about 8.4 per cent in 2016 and 2017.

Drought in parts of Africa especially 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.

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