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IMF blames African nations for improper use of loans

By Samuel Nduati, The Nation (Nairobi), 21 August 1999

Nairobi - The International Monetary Fund yesterday blamed Africa for not utilising past foreign loans properly and still wasting the money that continues to flow into the continent on unproductive spending.

It said although Africa continues to get money from abroad and relief debt concessions, the initiatives had not yielded the desired results as they were not accompanied by economic growth.

The failure of Africa to accompany external financial assistance with economic growth, it argued, was also responsible for the persistent poverty in most African states.

The director for the African department in Washington, Mr. G.E Gondwe, said accelerating economic growth was critical not only to social development and poverty reduction but also to resolving Africa's debt problem. He was giving the IMF's position at the official opening of Africa's external debt that opened yesterday at the School of Monetary Studies, Nairobi. It is organised by Japan and is being attended by finance ministers from African countries.

Mr. Gondwe said debt relief was not a panacea to Africa's problems, adding that on its own, it was unlikely to have the desired results. He said although most African countries had received debt relief of some kind on a regular basis over the past 15 years, the relief had not yielded the positive effects as it has been granted to countries with inconsistent macroeconomic policies and weak governance and so could not contribute to growth.

"The resources freed up by the debt relief were often not channelled to priority areas but to unproductive spending including the military," Mr. Gondwe said.

He urged the delegates to take the debt problem on country to country basis and look for solutions to the individual case.

The fundamental objective of debt relief of any kind, he said, should be to enable each country, with proper policies to achieve and maintain the high growth rate necessary for sustained development and poverty reduction.

Mr. Gondwe said if debt relief was to make a real contribution to accelerating development in Africa, it must take place in a context of macroeconomic stability and structural reform, adding that any approach to debt relief should be designed as part of an overall strategy for achieving faster growth through the efficient use of essential resources and enhancing the ability of governments to deliver essential services that their populations need by concentrating spending on priority areas.

The IMF official said although the external debts problem could be a balance of payment problem in that a country lacks adequate foreign exchange to make payments, or a budgetary problem in that the government is unable to raise enough money to make payments, in Africa it was a mixture of both.

He warned that from a budgetary point of view, the domestic debt could be as bad a problem as the external debt, noting that many of the African states seeking external debt forgiveness have high stocks of domestic debt, much of it already in arrears. He cautioned that for countries with large domestic debts, external debt relief would be insufficient.

Mr. Gondwe suggested that since African countries will continue to need substantial resources from abroad, it was imperative that they gradually shift from dependence on official development assistance to private capital flows particularly direct foreign investments.

However, he said, this would require the right policy environment to encourage private sector development.

He opposed direct cancellation of loans and suggested that poor countries negotiate for grants, pursue rescheduling and use money raised from privatisations to retire part of the debt.