Comments

Mr Kwabena Baah - Duodu, Deputy High Commissionaire for Ghana on the consequences for Ghana and Africa of failure to resolve the debt crisis.

The last sentence of the Ghana -based South African writer, Manu Herbestein's novel, Ama - A story of the Atlantic Slave Trade stated that 'The end of this story has yet to be written'. Indeed, the story of the suffering by Africans has not as yet ended as Africa continues to grapple with a multitude of problems. The continent has a debt burden of $11.5 trillion, which is strangulating it and preventing Africa from undertaking very vital socio-economic development.

This year's Human Development Report once again provides an indicator of Africa's economic woes. Twenty-seven African nations head a list of 173 of the world's least developed countries. Fifty-two African nations are on he list. Sierra Leone, which was racked by war for about a decade, ranks as the worst place to live on earth.

According to the Report, in sub-Saharan Africa, 'human development has actually regressed in recent years'. While most of the world has increased the number of children immunised against leading diseases, sub-Saharan African has since 1990 seen immunisation rates falling below 50 percent.

Most African countries have found themselves in this unfortunate situation due to poor earnings from exports, increasing unemployment and increasing import bills. This has crippled key sectors like education, health and infrastructure development.

To worsen matters, aid to Africa was halved in the decade of the 1990s: from $39 per capita to $19 per capita. Along with declining foreign assistance, HIV/AIDS and other infectious diseases have been major causes of our continuing poverty. It is sad to note that despite this frightening situation Africa continues to transfer to our creditors monies amounting to almost four times what it spends on the healthcare of its people.

The Debt Crisis
The debt crisis has imposed a number of constraints on sub-Saharan Africa's ability to have a smooth and well traceable growth and development patterns. External debt obligations have also drained Africa's resources and limited expenditures on critical productive ventures.

Today External Debt Servicing for practically all African countries far exceeds expenditures on health and education. Thus debt servicing cannot be sustained because Africa is denied the opportunity to make investments which will enable the continent to achieve high rates of growth and ensure prosperity.

The debt problem also undermines the capacity of African countries to ensure that sound macroeconomic policies, a prerequisite for growth, are implemented.

Capital Flight
Debt has led to capital flight from Africa. This has in turn led to:

· Shortage of liquidity in the African economies and its attendant pressure on domestic interest rates;
· Reduction in the rate of domestic capital formation
· Capital flight as a result of massive debt servicing which has also led to depreciation of domestic currencies and high inflation

Employment Problems
African countries need to grow by more than 7% a year on average to meet the Millennium Development Goals (MDG) of halving the proportion of people in poverty by 2015. On average, growth in Sub-Saharan Africa is below the required rate. Current growth rates of below 3% a year mean that the economies are not keeping pace with the growth of the population, and real incomes per head are falling. In Ghana past economic growth has been uneven: 1997 - 4.3%; 1998 - 5.3%; 1999 - 3.9%; 2000 - 3.7%; 2001 - estimated 4.2%

Solution to the debt crisis
Infrastructure and social investment are of particular importance if Africa is to reach its potential. It is, however, doubtful if Africa could make the necessary investments if the debt crisis remains unresolved.

Over the years, in their efforts at mitigating the effects of the debt crisis, short term measures have been resorted to through frequent rescheduling of debts. These short-term measures have, whoever, been ineffective and have worsened the situation. Indeed debt rescheduling only postpone payment, leaving basic problems unresolved. We in Ghana have had our own version of these reforms dictated by the IMF and the World Bank. Since 1983 Ghana have embarked on the Economic Recovery Programme, Structural Adjustment Programme and the Prgramme of Action to mitigate the Social cost of Adjustment (PAMSCAD). But we are still steep deep in poverty. While some of these failures could be attributed to exogenous shocks like falling prices of cocoa and gold (Ghana's major exports) and the like in the price of petroleum, weak macroeconomic management and corruption also worsened the situation.

Ghana's debt as at the end of the year 2000 stood at US$6.1bn, of which about 67% was owed to multilateral creditors, 26% to bilateral creditors and 7% to commercial creditors. Before the adoption of the HIPC initiative, debts owed to multilateral creditors were not subject to any form of debt restructuring. This kind of debt structure runs through several African countries. Thus, although most countries have gone to the Paris and London Clubs for debt relief derived from this arrangement, the impact has been very minimal.

Of the importance is the issue of sustainability of the debts of African countries. Since most of them over-rely on primary commodities for their earnings with few export diversification it is very difficult for them to make any headway in economic development. Ghana's debt sustainability test conducted before it applied for the HIPC Initiative indicated that our debt to domestic revenue was about 575&, which was well above the sustainable threshold of 250%.

It is against this backdrop that we adopted the HIPC initiative. Under this, the IMF has the right to grant a standstill in debt repayments.

Having reached the Decision Point in the HIPC Initiative, Ghana's economy has realised some tangible benefits. Monies, which would otherwise have been paid as interests on loans, are being made available for use in many areas to reduce poverty, to empower more people through increasing productivity and to improve the social services especially health and education. HIPC has also enable the Minister of Finance to make more money available to the Districts for development projects over and above what was normally available in the District Assemblies Common Fund.

In tandem with the adoption of the HIPC initiative, the Government of Ghana has adopted a series of measures to ameliorate our economic situation. At the macroeconomic level, therefore, there have been substantial gains and general stabilisation. Inflation and bank interest rates continue to fall and the currency (the cedi) has had a measure of stability. Indeed inflation has decreased from 40.5% (December 2000) to 12.5% low. This should enable businesses to better plan their operations and induce confidence in the corporate sector

But it is not enough to stabilise things. The ordinary person has to feel the gains in his/her pocket. To stimulate growth, therefore, the Government of Ghana has taken a series of measures to strengthen the banking system and increase the supply of long term capital that is available to agriculture and industry. At the micro level our small scale farmers and traders are being given credit that has not been seen in Ghana for the past 30 years. But we are not out of the woods yet.

With the decision to access the enhanced HIPC initiative, it has become necessary to borrow highly concessional loans similar to IDA terms. Meanwhile, funding from these official sources has stringent conditionalities, which make it difficult and time consuming to access, and they are associated with low utilisation rates, averaging around 45 % - 50%. The shortfalls in foreign inflows negatively impact on the assumptions government makes in its policy decisions to enable it achieve its development goals and to attain the needed growth rates.

Debt Cancellation
With this experience behind us, it is our firm belief that the most effective solution to the debt crisis of Africa and other developing countries is outright cancellation of debts. We are aware, that not all creditors are willing or are able to cancel debts. But if we want to banish the sufferings which our brothers and sisters in Africa are going through, then we should seriously consider this plea.

Increased and Improved Aid
African countries should be assisted to source for high concessional facilities that are geared into vital and priority sectors of their economies. These inflows should be mostly invested in projects with a payback capacity. These economies should be encouraged to also engage in domestic policy reforms that would improve the effectiveness of aid management.

International Trade
Cancellation of the debts and increasing of aid alone would not help Africa to come out of its hardships because the trade and agriculture policies pursued by the OECD countries remain an obstacle to Africa's economic prospects.

Africa accounts for 12% of the world's population, 1% of the world's GDP, and about 2% of world trade.

Higher tariffs on value-added products from Africa make it difficult for the continent to diversify away from its continuing dependence on export of commodities, which are declining in value. Agricultural subsidies in OECD countries distort the market, putting African exports at a competitive disadvantage both within OECD markets and on the wider world market. OECD countries can accelerate progress by committing themselves in the WTO negotiations launched at Doha to early action on their commitments, including reducing tariffs and non-tariff barriers on products of export interest to developing countries and also scrapping agricultural subsidies which places imports from African countries at a competitive advantage.