This archive report was first published on 6 August 2019.
At the 42nd annual meeting of the Association of African Central Banks (AACB) in Kigali, Rwanda on July 31st, IMF African Department Director Abebe Selassie highlighted the growing concern of rising African sovereign debt. The average debt has increased by almost 20 percentage points of the GDP between 2013 and 2018, he noted.
According to Mr. Abebe, large primary deficits and valuation effects associated with exchange rate depreciation were the main drivers of accumulating sovereign debt. This has led to a range of challenges, including increased risk of 'soft fiscal dominance' and weakened transmission of monetary policy.
High public debt can also create financial stability risks, as government arrears to suppliers prevent the private sector from repaying bank loans, leading to a significant rise in non-performing loans. To address these issues, Mr. Abebe called on central banks to strengthen the monetary policy framework, improve debt data collection, and address the bank-sovereign nexus.
Mr. Abebe's comments were echoed by Rwandan Central bank governor John Rwangombwa, who emphasized the need for African countries to improve debt management capacity, borrow for the right purpose, and build their capital markets. The symposium, held under the auspices of the African Union, focused on strategies for sovereign debt management and financing the development agenda.
