African Development Bank chief urges continent to learn from Greek crisis

Outgoing African Development Bank president Donald Kaberuka says Africa must focus on economic stability amid struggles with deficit and debt

Donald Kaberuka, the outgoing president of the African Development Bank (AfDB), has cautioned African countries to heed lessons from the Greek debt crisis and consolidate economic stability, with growth in the continent set to be driven by increased public expenditure.

Saddled with massive debts and with its battered economy mired in recession, Greece faced the prospect of defaults on its loans and the collapse of its financial system before it reached a last-minute deal on yet another bailout.

Some countries in Africa are experiencing similar struggles to keep deficits and debts under control.

“What is going on in Greece is an important lesson for African countries, that macroeconomic stability should never be taken for granted,” said Kaberuka, who leaves office in September after his 10-year tenure as AfDB chief.

“We must remain vigilant to ensure that our economies remain stable, that the deficits are under control, government borrowing is wisely done, that the currencies are stable, and that the banks are well regulated and capitalised and supervised,” he said on the sidelines of last week’s financing for development conference in Addis Ababa, the Ethiopian capital.

The AfDB is one of the continent’s biggest lending institutions, rivalling the World Bank in financing infrastructure projects to improve electricity, transport and water services. In 2013, the bank approved almost $3.16bn (£2bn) in loans and grants to infrastructure schemes, according to its annual report.

Africa’s gross domestic product is set to grow 4.5% this year and 5% in 2016, according to the bank. In the eyes of many, the continent’s ever increasing investment in infrastructure merely reinforces this optimistic forecast.

But Kaberuka, a former Rwandan finance minister who is credited with steering the bank through the financial crisis of 2008, says the factors that cushion Africa, such as its fiscal space to control revenue and expenditure, remained weaker as a result of that crisis.

“It is paramount to rebuild those cushions and preserve them. These are the things which ensure that our transformation agenda has got sound foundations,” he said.

Akinwumi Adesina, Nigeria’s agriculture minister, will take over from Kaberuka on 1 September, becoming the 50-year-old body’s eighth leader. Adesina has said one of his priorities is to have smarter infrastructure to boost productivity and competitiveness in Africa. He has also stressed the importance of the private sector for wealth creation.

Private investment was likewise cited as a key resource for funding development priorities for the next 15 years during the Addis Ababa talks and in the final agreement, with governments urging the creation of more conducive environments for this through public policies and regulation.

However, some campaigners have criticised this emphasis, saying there were no guarantees that private finance would benefit the world’s poorest people.

The Addis agreement outlined all possible sources of financing for the ambitious sustainable development goals, which are due to be ratified by the UN general assembly in September. UN officials have noted the need to move from “billions to trillions” to fund the 17 goals, which build on the narrower focus of themillennium development goals.

Kaberuka drew parallels between the tough reforms sought by Greece’s creditors and those imposed by international finance institutions on African countries in the 1980s and 1990s, before large-scale debt forgiveness was granted. He said monetary adjustments such as devaluation – an option unavailable to Greece – were also among the measures adopted.

But, he added, some of the currencies in Africa’s biggest economies were “gyrating much more than usual”. He also cautioned against domestic debts that may lead to higher interest rates.

“That requires attention. We saw the [Nigerian] naira, for example. Before that there was the [Ghanaian] cedi. Even some of the shillings in east Africa,” said Kaberuka, stressing the need for continued economic vigilance.

“People like to focus on external borrowing. External borrowing is not a problem per se, as long as it is within sustainable levels, as long as the investments are sound investments, and as long as debt management capacity is there.”

Source: Theguardian.com

By: Aaron Maasho in Addis Ababa

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