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Southern Africa debt profiles

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Southern Africa debt profiles

08 Sep 2019

3min min read
  • Economic policy
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he African Forum and Network on Debt and Development publishes annual debt profiles on countries in southern Africa. These profiles provide a snapshot of the individual economies and provide policy recommendations to the respective governments. The profiles for Malawi, Mozambique, South Africa, Zimbabwe, and Zambia are provided via the hyperlinks below. 

Malawi's economy has made progress in achieving macroeconomic stabilisation following two years of severe drought and lingering consequences of corruption scandals. However, Malawi faces a moderate risk of debt distress based on an assessment of public external debt, with heightened vulnerabilities related to domestic debt. Three recommendations are made. Firstly the government should direct resources from debt to capital projects that have the ability to payback and also towards productive sectors of the economy, contrary to funding recurrent expenditure. Secondly, as there has been a significant rise in domestic debt, the government should formulate and implement prudent domestic debt management strategies to mitigate the effects of rising debt on the economy. Lastly there is need to strengthen the soundness of the fiscal position through promotion of FDI policies and through capacity utilisation across all key sectors of the economy.

Mozambique's debt is currently in distress, and total public debt is on an unsustainable path. A large portion of the Mozambican debt is foreign currency dominated, hence, the debt dynamics are susceptible to fiscal policy slippages, tighter financing conditions and external exchange rate shocks. There is a call for prudent fiscal policy to rein in public debt. The government should direct resources from debt to capital projects that have the ability to payback and also towards productive sectors of the economy, contrary to funding recurrent expenditure. There has been a significant rise in domestic debt, constituting a large share of the total public debt. Hence, the government should formulate and implement prudent domestic debt management strategies to mitigate the effects of rising debt on the economy.

South African debt management has evolved quite substantially since the 1970s when the need to develop the debt capital market was identified. However, despite a well-established domestic market, imbalances remain as indicated by poverty, unemployment and high inequality. Therefore, the South African government is recommended to devote more resources to address these imbalances respectively. There is a need to continue strengthening the soundness of the fiscal position through the promotion of FDI policies and through capacity utilisation across all key sectors of the economy.

Zimbabwe's domestic public debt has risen, exceeding 100% from about US$3.7 billion in 2016 to about US$ 9.5 billion in 2018. In addition, for the past 5 years, GDP growth in Zimbabwe has been below 5%, averaging 3% per year. The government should direct resources from debt to capital projects that have the ability to payback and also towards productive sectors of the economy, contrary to funding recurrent expenditure. In the absence of effective monetary policy, the government should strengthen the soundness of its fiscal position through the promotion of foreign direct investment policies and improve capacity utilisation across key sectors of the economy. There has been a significant rise in domestic debt, constituting a large share of the total public debt. Hence, the government should formulate and implement prudent domestic debt management strategies to mitigate the effects of rising debt on the economy.

Zambian debt in 2017 stood at US$13.5 billion representing 52.5% of GDP - 70% of which was external debt (US$9.5 billion) and 30% domestic debt (US$ 4 billion). The growing debt burden in Zambia is a strain on domestic resources and is a barrier to the attainment of macroeconomic objectives. The government should direct resources from debt to capital projects that have the ability to payback and also towards productive sectors of the economy, contrary to funding recurrent expenditure. The government should strengthen the soundness of its fiscal position through the promotion of foreign direct investment policies and improve capacity utilisation across key sectors of the economy. There has been a significant rise in domestic debt, constituting a large share of the total public debt. Hence, the government should formulate and implement prudent domestic debt management strategies to mitigate the effects of rising debt on the economy.

(Main image: A collage of African bank notes including the Tanzanian Shilling, Zimbabwean Dollar, Ugangan Shilling, Lesotho Loti and Zambian Kwacha - iStock/Getty Images Plus)

The opinions expressed in this article are those of the author(s) and do not necessarily reflect the views of SAIIA or CIGI.