Africa won't fall back into 1990s-style debt trap: AfDB - CNBC Africa

Africa won't fall back into 1990s-style debt trap: AfDB

Special Report

by Reuters 0

Africa won't fall back into 1990s-style debt trap. PHOTO: Flickr

Africa is unlikely to fall into the type of unsustainable debt trap seen in the 1990s despite a spike in borrowing and widening budget deficits, the African Development Bank (AfDB) said on Monday.

Falling commodity prices and slowing global growth have hammered African economies in the past year, prompting many governments to sharply increase borrowing, drawing comparisons with the crippling debt trap many countries faced in the 1990s.

The AfDB said last week that African governments must take urgent steps to ensure they can finance their debt after borrowing heavily when interest rates were low.

In 1996, international donors cancelled tens of billions of dollars in debt owed by African countries through the Heavily Indebted Poor Countries (HIPC) Initiative.

"Clearly the increase in debt coupled with serious budget deficits are putting a lot of pressure on African countries," AfDB vice-president Charles Boamah told Reuters on the sidelines of a meeting on debt management.

"But we don't think it is going to put us back into the pre-HIPC type of era."

Though Africa still relies heavily on commodity exports, most of the continent's economies are far more diverse and developed than 20 years ago while governments have adopted more responsible fiscal policies.

"We certainly believe in the strength of the macroeconomic policies that many African countries are pursuing," Boamah said.

The AfDB said in a report last week that Africa was likely to grow 3.7 percent this year as resilient private consumption and investment offset the impact of a slump in commodity prices and global headwinds.