Don’t borrow to finance SDGs : UNCTAD cautions African countries
The United Nations Conference on Trade and Development (UNCTAD) has advised African countries against borrowing too much to finance the Sustainable Development Goals (SDGs).
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The UNCTAD 2016 Economic Development in Africa Report said financing of the SDGs would come at a high cost and that would require African countries to borrow more in order to attain them. That, it noted, could pose a major challenge to maintaining debt sustainability and preventing debt distress.
The report, titled: “Debt Dynamics and Development Finance in Africa,” said: “As a result of the high costs of financing the Sustainable Development Goals, which are unlikely to be covered by official development assistance and external debt alone, the importance of domestic debt in development finance has gained prominence.”
Strike a balance
It has, therefore, advised a better balance between the benefits of new concessional and non-concessional borrowing from both domestic and external sources and the benefits of restricting any such borrowing to achieve debt sustainability.
“Clearly, achieving the goals and maintaining debt sustainability is desirable. The difficult question is how African countries may achieve the dual goal of covering their development finance needs and maintaining debt sustainability,” the report added.
On Ghana, the UNCTAD urged the country to continue to strengthen macroeconomic fundamentals and also pursue structural transformation in order to avoid a debt trap in the future.
Launching the report in Accra last Thursday, a Consulting Economist, Mr Philip A. Cobbina, said it would be instructive for Ghana to make use of complementary modalities such as public-private partnerships (PPPs) as well as remittances and diaspora bonds.
Public-private partnerships
To attain financial sustainability, he said, the report urged the government to institute adequate legal and policy frameworks to optimise the use of PPPs for development while minimising the pitfalls of PPP failure.
Developing regulation that guided an appropriate valuation and recording of PPPs, he said, ought to be accompanied by defined risk management principles and the consideration of a contingent liabilities fund, to address failing PPPs when they merited government intervention.
Financial deepening
Also, Mr Cobbina said, facilitating and lowering the cost of formal remittance channels would make for the attraction of more remittances through those channels.
“Financial deepening will also make it possible to mobilise and use diaspora savings, for example through diaspora bonds, foreign-currency-denominated deposits and syndicated loans with remittances as collateral,” he added.
The report, Mr Cobbina said, also recommended that the country lessened exposure to commodity price volatility through export diversification and ensuring greater efficiency in government spending and revenue collection.
The UNCTAD report
In her opening remarks, the National Information Officer at the United Nations Information Centre (UNIC), Mrs Cynthia Prah, said the 2016 UNCTAD report examined some of the key policy issues that underlaid Africa’s domestic and external debt and provided policy guideline on the delicate balance required between financing development alternatives and overall debt sustainability.
“African governments must take proactive steps to prevent accumulating debt as was the case in the 1980s and 1990s,” she said.