African countries are sinking deeper into the red and creditors should cancel the continent’s debts to give it a chance to meet global poverty reduction goals, the United Nations said in a report.
Africa requires a minimum economic growth rate of 7 percent to 8 percent to stand a chance of achieving the United Nations’ Millennium Development Goals, which include cutting poverty in half by 2015, according to the report Thursday by the U.N. Conference on Trade and Development, or UNCTAD.
“Even if all the outstanding debt were to be written off, this would represent less than half the resource requirements of Africa,” said Kamran Kousari, one of the authors.
The continent received about $540 billion in loans from 1970 to 2002 and paid back $550 billion, including interest. Yet it still had $295 billion of debts at the end of 2002, UNCTAD said.
“The further servicing of this debt represents a reverse transfer of assets from these countries,” Kousari said. “Is this justifiable?”
The problem is even more acute in sub-Saharan African countries, which remain $210 billion in debt despite paying out 91 percent of the amount they originally borrowed.
Private investors also are put off because the debt burden means governments are unable to invest in improving decaying infrastructure, the report said.
Sophisticated financing needed
To find a permanent solution to the problem, African countries will have to pursue policies of prudent debt management, economic diversification and sustained economic growth, UNCTAD said. Rich governments must support those initiatives by increasing African countries’ access to their markets, as well as by reducing — and eventually eliminating — agricultural subsidies, which make it harder for exporters in poor nations to compete.
“It is only through this partnership that African countries would be able to achieve sustained high growth rates and development, implement the poverty reduction strategies necessary [and] halving poverty by 2015,” the study said.
Low levels of savings also fuel high poverty levels, it added.
The debt overhang is only partly due to the legacy of corrupt and irresponsible governments, it said, adding that global economic shocks, dependence on exporting a handful of commodities, poor reform programs and the actions of creditors had all added to the problem.
A debt relief initiative launched in 1996 has had little impact, the study said. The initiative was expected to reduce the external public debt of the world’s 42 poorest countries, 34 of which are in Africa, but most of them are still a long way from achieving sustainable levels of external debt, the report said.
Some countries don’t qualify
Several equally poor African countries are excluded from the debt-slashing program as they were unable to implement sufficient economic reforms to be allowed on board.
At the end of 2001, Nigeria had the continent’s largest debts, at $31 billion, followed by Egypt, with $29 billion, and South Africa, with $24 billion. Small economies, such as those of Equatorial Guinea and Comoros, had the lowest of all the African countries.
The Millennium Development Goals were set out at the United Nations-sponsored summit of world leaders in September 2000.
In a declaration adopted by 189 countries, the leaders promised to cut in half the number of people living on less than $1 a day and people who do not have safe drinking water by the year 2015.
They also pledged to provide universal primary school education by 2015, improve the lives of slum dwellers, halt or reverse the spread of HIV/AIDS and other diseases, and improve the environment.