Rwanda categorized highly indebted, poor country as Museveni is ignored

By Francis Otucu

The International Monitory Fund (IMF) has listed 25 countries in the Sub Saharan Africa, said to be highly indebted and poor.

As a result, they will get debt service relief grant for a period of six months.

The countries include Uganda’s neighbor, Rwanda. Other countries on this list include; Malawi, Liberia, Niger, Benin, the Gambia, Central Africa Republic and Ethiopia among others.

According to the IMF, total debt relief stands at US$ 227.01 million.  

For a country placed under category, Debt Service Relief from the Catastrophe Containment and Relief Trust (CCRT), interest payment on their debt will be waived/paid for by grant for those six months.

“The criteria for the list must have been ability to service debt obligations under the corona pandemic situation. It seems those 25 were considered least able to meet their debt service obligations, hence the support,” an economist, who preferred not be named, explained.

However, this does not affect credit rating.

“It does affect the credit rating (credibility) considering that another fund program or entity is used to pay your debt over the period in question. A credit rating lower than C – is unattractive to long term lenders as the borrower is considered risky and may not be able to repay all her loans in time as agreed,” the source said, warning highly indebted countries, “In the worst case scenarios, the majority of countries above, whose tax to GDP collection ratio is below 10% annually, with debt to GDP above 45%, they may never pay the loans comfortably, while providing normal services to their citizens. Ultimately, some of the debts sources may be written off or forgiven. The cycle may repeat itself if new calamities present new risks. Eg wars, drought, floods, pandemics, etc. When you start negotiating for refinancing (more expensive than the original loan), then you know you are in serious financial distress. It’s a situation nations do not want to get into. It’s akin to begging from John to pay Peter. A lot of care and sensitivity analysis (what if situations) must be taken before debts are made.”

However, IMF’s ‘assistance’ could be unhealthy.

“Glaring gaps or arrears unpaid in loan repayments for months are red flags for any lender to approve a refinancing or new loans,” the source noted.

UGANDA IGNORED

According to The Telegraph, President Yoweri Museveni recently told United Nations delegates that only total debt forgiveness would prove that the world was interested in helping Africa fight a disease that was not of its own making.

“The external friends, if they are friends at all, should cancel all the multilateral and bilateral loans because this problem has been created for Africa by Asia,” Museveni is quoted to have said arguing that multilateral and bilateral loans should be cancelled ‘because this problem has been created for Africa by Asia’.

According to The Telegraph, Museveni’s call to ‘rich countries’ to cancel all of Africa’s debt was aimed at helping the continent free up enough cash to fight the coronavirus pandemic.

The continent’s total sovereign debt burden has soared to a record high of £230bn this year.

Analysts say Museveni’s demand appeared to be aimed primarily at China, which has fueled much of Africa’s recent debt binge. 

“A joint African Union Chair and Commission strategy could engage China and other bilateral lenders to forgive the huge loans whose payments have fallen behind schedules with pointers that they can never pay back the loans. How, lenders are going to stage a spirited negotiation and are bound to be divisive,” an analyst said.

Although Western states, the IMF and World Bank have taken steps to relieve some of Africa’s debt burden, China has remained silent on the prospect of cancelling loans owed to Beijing by African states.

China is believed to hold more than a third of the continent’s sovereign debt, reportedly lending African states more than £90bn to fund big infrastructure projects.

Although Africa desperately needs to develop its infrastructure, China has been criticized for the opacity of its lending agreements. Even the amount lent is kept secret, leaving academics to estimate the true totals.

African ministers say China has told their governments that debt relief would only be granted if they surrendered stakes in important state assets to Beijing, in line with provisions in the lending deals. This has led to worries that strategic ports, airports and mines in Africa could fall under Chinese control.

Zambia has threatened to seize a large copper mine from the British company Glencore and hand it over to China in order to secure debt relief.

The G20, which groups together the world’s richest states and includes China, has agreed to suspend collection of debt from the world’s 75 poorest countries until the end of the year, giving many African governments some breathing space.

But it is unclear to what degree this affects the estimated £6.5bn African states must pay Beijing by the end of December. 

The suspension of debt repayment has only provided modest relief. African finance ministers say they need £80bn to finance the measures needed to halt the spread of Covid-19 on the continent.

Africa has so far been spared the full force of the pandemic, recording 51,734 confirmed cases and 1,954 deaths so far — but lockdowns, a steep decline in oil and commodity prices and a collapse in tourism are likely to take a heavy toll on the continent’s economy.

But according to analysts, Uganda did not need the relief.

“Uganda is no longer in distressful situation and we pray that it stays that way,” the source said, worrying though, “but for how long is the question given the devastating impact brought about by COVID 19? Uganda’s growth projection has been hit already. Recall the last quarter of 2019 when the whole country was affected by heavy rains. We have started to see the rising levels of Lake Victoria due torrential rains in the catchment areas of the lake.”  

To qualify for debt relief, you must be in the category of (HIPCs)-highly indebted poor countries. Such countries are chronically servicing debts far above domestic public expenditure.

The 3 parameters for qualification are; a) the country must reach unsustainable debt level incapable of relief from traditional institutions, b) the country must accept to be supported on a reform process through additional loans from the same institution (IMF) and c) the country must be eligible to borrow from the same institution.           

“All the above requirements only help to exacerbate the situation. If Uganda doesn’t feature, it means we don’t meet the requirements,” a source said.