Money Moves July 26, 2016 at 08:00 am

UNCTAD Calls for Mobilization of Domestic Resources in Africa To Reduce Debt

Fredrick Ngugi | Contributor

Fredrick Ngugi July 26, 2016 at 08:00 am

July 26, 2016 at 08:00 am | Money Moves

United Nations Secretary-General Ban Ki-Moon adressing the 14th UNCTAD Conference in Nairobi, Kenya. Photo (UN Multimedia)

As the curtains fell on the just concluded 14th UNCTAD Conference in Nairobi on Friday, a number of important issues were agreed upon, one of which was the establishment of a framework with greater emphasis on the mobilization of domestic resources.

In the Economic Development in Africa Report 2016, delegates who attended the conference provided policy guidance on how Africa should be able to balance between debt sustainability and funding development.

With the growing foreign debt in many African countries, policymakers and analysts called for a quick action to prevent recurrence of the African debt crisis of the late 1980s and 1990s.

The conference also noted with concern a change in borrowing trend as some African countries are now borrowing from private lenders.

UNCTAD further noted that the African private sector is also entangled in the yokes of external borrowing where corporations are acquiring large corporate bonds, most of which are issued in foreign currencies thus exposing countries to foreign exchange risks.

“In addition, private sector debt may translate into public debt if bailouts become necessary to prevent a collapse of the financial system when private borrowers cannot honor their debt obligations,” the report states.

Some African countries are, however, slowly shifting their focus to domestic sources of funding and adopting policies aimed at developing domestic debt markets with the active support of international financial institutions and other international organizations, the report claims.

“In the future, domestic borrowing is likely to play an increasingly significant role as sustained growth performance in a large group of African countries boosts national savings and broadens the scope for financing development with domestic resources,” the report adds.

Recommendations

Based on agenda 2063, the report calls for the mobilization of domestic resources, building of continental capital markets and financial institutions, and reversing illicit flows of capital from the African continent, with the aim of achieving financial dependence.

By mobilizing domestic revenue, UNCTAD expects Africa to reduce its dependency on foreign aid by 50 percent, while eliminating all forms of illicit flows of capital.

The continent will also be able to double the contributions of its capital markets in funding development projects, most of which are currently funded by foreign aid.

According to UNCTAD, the current unsustainable levels of debt in most African countries can be reduced significantly through mobilization of domestic resources.

It will also be an opportunity for the African continent to create effective, transparent and harmonized tax and revenue collection systems and public expenditure.

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