Rising debt levels raise concern

East African countries need to control debt as levels are rising too fast for the size of the economies. According to Celeste Fauconnier, a senior economist at Rand Merchant Bank, both Rwanda and Ethiopia, while considered to be fast-growing economies on the continent, were increasing debt levels too fast. “Rwanda is still a very small economy in dollar terms and whilst it has made major inroads in the past few years and has improved its business environment, the debt levels are increasing faster than what we want for such a small economy,” she told FTW. Ethiopia, ranked in the top 5 of the bank’s annual ‘Where to Invest in Africa’ survey, was also seeing debt rise fast. “Another challenge in Ethiopia is that one still can’t repatriate dollars out of the country, although that is changing,” she said. “The government did extremely well in investing in its own industries such as telecommunications,

agriculture and banking, but it blocked international companies from coming into the market. It is therefore highly debt distressed.” Fauconnier said the country had realised it would have to open its market to foreign direct investment and small signs of the government releasing control were encouraging. “Concerns about higher debt levels in Africa are, however, escalating. Take, for example, investor reactions – severe but understandable – to news of Mozambique’s US$2.2bn debt scandal,” she said. “Some countries have used Eurobond funds as a safety net for paying off debt – a strategy that cannot be relied on, considering waning investor appetite for riskier assets due to global economic conditions. What is needed is prudent fiscal policy to rein in public debt. At the same time, monetary policy must be geared towards ensuring low inflation.”