African countries must borrow smarter, urges Kganyago

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South African Reserve Bank Governor Lesetja Kganyago has called on African countries to be smarter when borrowing money. He says debt is not a replacement for domestic revenue mobilisation.

Kganyago was delivering his opening address at the African Economic Research Consortium’s  50th biannual plenary currently underway in Cape Town.

The plenary brought together more than 200 researchers, academics, policy makers and economists to discuss the rising debt levels faced by African countries.

In officially welcoming the delegates at the workshop, Kganyago also raised concern that debt should not be used for other intended purposes.

“Public debt has as important role to play in financing development, particularly in smoothing government expenditure, however it should be clear that debt is not a replacement for domestic revenue mobilisation. Meanwhile debt levels have to  remain sustainable so as not to undermine market confidence. To ensure that debt plays a meaningful role, it must be utilised for revenue generating activities that increase the productive capacity of the economy.”

He further warned that debt is not something that can be hidden, saying debt transparency is crucial.

“I have heard of people being able to hide assets in some foreign countries.  I have never thought that people would even conceivably think of hiding debt, because how long can you hide it? At some stage somebody will come to you  and say,- you owe me. And so the debt will come out. So I do not understand why people even try to hide the debt. So the issue of debt transparency is going to be come crucial going forward.”

Rising levels of debt on the continent

The Executive Secretary of the UN Economic Commission for Africa Vera Songwe is one of the delegates who presented her research paper on rising levels of debt on the continent.

Songwe told the consortium that increasing interest rates, instead of the debt itself, is the main problem that leads to the high levels of debt faced by African countries.

“The fact again that our debt is high is high again is not the problem. It’s the fact that we cannot pay the interest rate. That’s where the problem is. And as the interest rates begin to change, we begin to fall into problem. I had a paper where I show Ghana for example goes to  the market and raised a Euro-bond for 750-million  dollars and then interest rates change. And that Euro-bond becomes 1-point-three  billion (US Dollars). The citizen’s of Ghana are paying the exchange rate risk.”


The Vice Chancellor of the University of Cape Town Mamokgethi Phakeng says researchers from Africa have a better perspective of the world than their counterparts abroad.

UCT is in partnership with the consortium in the field of research. Phakeng had this advice for research students who were part of the workshop.

“I would like you to consider this one point as Africans. As Africans, you have a perspective of the world that most other researchers in your filed anywhere else in the world will not have. You can see first hand the results of poverty and inequality. You know people, whether your realise it or not – who are affected by TB, HIV/AIDS, depression, unemployment, climate change, the extinction of species. You have something to offer that many other researcher in the world lack, because they did not grow up here and they do not  know what growing up in the developing world feels and looks like.”

AERC a capacity-based network

The Director of the African Economic Research Consortium Njuguna Ndungu’u says the research papers presented on the challenges facing the African economies will be valuable.

He says, “AERC is actually a capacity-based network. And what we do is that we encourage evidence-based policy advice to African countries. What we are going to do with these papers,  the take  always is that we are going to summarise these papers and in future they will inform policy and one of them  is convening the  policy makers, especially Minister of Finance to actually discuss the issues and even the implementation. We convene policy makers once we have some resource to share.”

Zimbabwe’s 2% tax on electronic transactions

On the question of improving tax revenue collection in African countries,  it turned out that the  Zimbabwean Treasury’s introduction of a 2% tax on all electronic transactions has yielded positive results  beyond that government’s expectations. This is according to Zimbabwe’s Deputy Reserve Bank Governor, Kupukile Mlambo during the media briefing.

Mlambo says Zimbabwe’s national budget is solely dependent on domestic resources and domestic borrowing. He says the tax on electronic transaction even managed to cater for the recent floods that hit the country.

“Treasury they  introduced a 2-percent  tax on all electronic transactions. This is  very important for Zimbabwe because 95-percent of our domestic transactions are in electronic form so cash really accounts for a very small amount of payments because of the shortage of cash. Now what this 2-percent tax on electronic transactions has done,-  is that it has also managed to bring in the informal sector which normally doesn’t pay taxes.  And for the first time in almost six years we are to have a surplus on  our budget. So that is one of the ways we have done and  we were able to pay for unforeseen disasters like cyclone Idai out of that 2%. So it has really worked more than we expected.”