BUSINESS24 | MONDAY FEBRUARY 17, 2020
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BANKING
AfDB refutes World Bank President’s comments on Africa’s debt profile In several news reports, World Bank President David Malpass was recently quoted as saying some Multilateral Development Banks, including the African Development Bank, have a tendency to lend too quickly and in the process, add to the continent’s debt problems. According to AfDB, the statement made Mr. Malpass is inaccurate and not fact-based. Below is the full statement: The World Bank, with a more substantial balance sheet, has significantly larger operations in Africa than the African Development Bank. The World Bank’s operations approved for Africa in the 2018 fiscal year amounted to US$20.2 billion, compared to US$10.1 billion by the African Development Bank. With regard to Nigeria and South Africa, the World Bank’s outstanding loans for the 2018 fiscal year to both countries stood at US$8.3 billion and US$2.4 billion, respectively. In contrast, the outstanding amounts for the African Development Bank Group to Nigeria and South Africa were US $2.1 billion and US$2.0 billion, respectively, for the same fiscal year. With reference to the countries described as “heavily indebted,” our Bank recognizes and closely monitors the upward debt trend. However, there is no systemic risk of debt
Dr. Akinwumi A. Adesina
distress. According to the 2020 African Economic Outlook, at the end of June 2019, total public debt in Nigeria amounted to $83.9 billion, 14.6% higher than the year before. That debt represented 20.1% of GDP, up from 17.5% in 2018. Of the total public debt, domestic public debt amounted to $56.7 billion while external public debt was $27.2 billion (representing 32.4% of total public debt). South Africa’s national government debt was estimated at 55.6% of GDP in 2019, up from 52.7% in 2018. South Africa raises most of its funding domestically, with external public debt accounting for only 6.3% of the country’s GDP. Development Banks continue to play critical roles in
development efforts and in the aspirations of developing countries, most especially in Africa. Given substantial financing needs on the African continent, the development assistance of the African Development Bank, the World Bank and other development partners remain vitally important, with increasing calls for such institutions to do even more. The lending, policy, and advisory services of these development institutions in their respective regions are often coordinated and provide substantially better value-for-money to developing nations, compared to other sources of financing. As a result of the African Development Bank’s AAA-rated status, we source funding on
highly competitive terms and pass on favorable terms to our regional member countries. Combined with other measures to ensure funds are used for intended purposes, it helps regional member countries finance debt and development in the most responsible and sustainable way. With regard to the need for better lending coordination and the maintenance of high standards of transparency, the African Development Bank coordinates lending activities, especially its public sector policy-based loans, closely with sister International Financial Institutions (notably the World Bank and the IMF). This includes reliance on the IMF and World Bank’s Debt Sustainability Analyses (DSA)
to determine the composition of our financial assistance to low-income countries; and joint institutional approaches for addressing debt vulnerabilities in the African Development Fund (ADF) and International Development Association (IDA) countries. In addition, country economists of the African Development Bank fully participate in regional and country-level IMF Article 4 missions. Contrary to suggestions, these are just a few concrete examples of historic and ongoing coordination between sister Multilateral Development Banks, IFIs, and development partners. The African Development Bank is committed to the development of the African continent. It has a vested interest in closely monitoring debt drivers and trends in African countries as it supports them in their efforts to improve the lives of the people of Africa. We are of the view that the World Bank could have explored other available platforms to discuss debt concerns among Multilateral Development Banks. The general statement by the President of the World Bank Group insinuating that the African Development Bank contributes to Africa’s debt problem and that it has lower standards of lending is simply put: misleading and inaccurate.
West African CFA franc reform: what’s changing in 2020 Before the Eco can replace the CFA franc, as announced in Abidjan on 21 December 2019, a number of technical, legal and political hurdles must be cleared. The date of the new currency’s introduction is impossible to predict at this time. To date, only the monetary agreement has been finalised. It will replace the 1973 agreement between the eight Union Economique et Monétaire Ouest Africaine (UEMOA) member states and France. The new agreement was signed on 22 December 2019 by all ministers of finance of the nine governments concerned, but no information is known about its content because the African ministers did not release it to the public. Prior to the upcoming Economic Community of West African States (ECOWAS) meeting, set to be held in June 2020, there are several steps left in the transition process: The monetary agreement, which provides for the Eco to be pegged to the euro with a fixed exchange rate and an unlimited, unconditional guarantee by France, must be ratified by the France’s parliament and UEMOA member states in accordance with their own legal rules. The guarantee agreement, to replace the operations account agreement with the French Treasury, will specify the terms under which the guarantee may be triggered, whether in the form of an overdraft or a line of credit. It will consist of an interest rate that could change based on the duration of the
BCEAO will need to be taken into account. Tricky transition period
overdraft or line of credit. The agreement will be signed by the governor of the Banque Centrale des États de l’Afrique de l’Ouest (BCEAO) and France’s minister of finance. The withdrawal of BCEAO reserves from the French Treasury will occur
after these two agreements have been finalised. The reserves will be invested by UEMOA member states, at their discretion, with central banks or the Bank for International Settlements, likely in the spring of 2020.
Representing 50% of member states’ total reserves, they are primarily made up of listed government bonds. Given that they yield less than the 0.75% rate currently paid by the French Treasury, the resulting budgetary imbalance for the
The removal of French representatives from the BCEAO’s supervisory bodies should, in theory, occur after the institution’s statutes and the texts governing UEMOA have been updated. However, given that these formalities could postpone the Eco’s introduction until the end of 2020 and that France would like to get rid of the political burden of the CFA franc as quickly as possible, Paris will remove its representatives as soon as UEMOA member states request it to do so. Banknote printing and coin minting for the Eco is not expected to take place before the divergent positions of UEMOA and ECOWAS are clarified regarding the fixed or flexible exchange rate of the future common currency as well as its peg to the euro and the French guarantee, which Côte d’Ivoire backs but Nigeria rejects. Nevertheless, a power struggle over the highly symbolic nature of the currency’s name change has been the focus of attention. The transition from the CFA franc to the Eco is shaping up to be tricky. If markets get anxious about the new currency’s risk of instability, the Eco’s exchange rate could become highly volatile. Monetary turmoil resulting from such market fears would inevitably impact economic growth across West Africa. theafricareport
