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Why is debt tough in poor countries than US?

10 Oct 2022 at 06:09hrs | Views
The debate on African development has been trapped between mismanagement by its leadership and those who argue that Africa is rising but its progress is waylaid by conditions it found itself in upon joining the global community at independence.

Those who follow the latter argument, posit that Africa as a continent has not been allowed the freedom to be itself since colonisation as everything that manifests in most, if not all countries, is scripted by former colonisers who control global government institutions.

One example that has been cited as the reason for stunted economic growth and slow development is international debt. Because economic growth and development have been portrayed as outcomes of money and not so much on national efforts, African countries have formed the longest queue of borrowers from the institutions controlled by former colonial powers.

Despite the huge debts accrued over the past seven decades, Africa has remained the poorest continent in the world, perhaps an indication that money alone is not the panacea to its poverty problems. The continent needs to count on its people, natural resources, local ideas, other capacities and stop entrusting and outsourcing the future of its development to its former abusers. Or maybe, it needs to find ways of extricating itself from post-colonial entrapment.

Let's take this as an example. In 2020, Africa had acquired a total external debt of US$702,4 billion, which is up from $380,9 billion in 2012. This amount is owed to official creditors, including multilateral lenders, governments and government agencies. Much of this money is owed rich Western countries and institutions such as the World Bank and the International Monetary Fund.

But over the past two decades, the sources of borrowed funding expanded to include China, India, Turkey and other new multilateral institutions. Money is never free. It either comes in exchange for something such as access to resources or for interest. Lenders give out money as a form of investment and they expect profit and returns from it. So when a government borrows, it must ensure that the money produces more than the expected return for it to make sense.

As long as the solution to addressing poverty and suffering is linked to money — external money for that matter, the appetite for borrowing is not abating. The impact of the COVID-19 pandemic and the desire to bolster economic recovery has pushed many African countries to borrow more and yet they have not shown the impact of what has been borrowed before. The money solution to poverty reduction has more than seven decades of documented failure but borrowing continues anyway and has exposed African governments to external influences.

For starters, borrowed money comes with conditions, some of them too prescriptive to the extent of undermining governments by determining how they should run their affairs. Even when the prescribed policies are not suitable for their context and have not worked, African governments are expected to graciously accept the blame and sometimes face the wrath of externally sponsored regime change moments led by civil society organisations. And of course, the promotion of democracy and human rights are the easy triggers to remove a government.  That is what global money does.

Some African scholars and experts have also bought into the mainstream way of thinking placing the blame at the doorsteps of African leadership. Notwithstanding their weaknesses and sometimes misplaced priorities, African leaders operate in a foreign-interest-infested and congested context. The economic stagnation in African nations has been compounded by the loan policies of multinational lending agencies that pursue powerful member States' political and economic interests. If international lending was a vehicle to help developing countries, then there must be efforts to protect the developing countries from being put in a difficult bind.

If debt and its usage at the country level were real impediments to economic growth then the US's economy would have plunged by now. By February this year, the US debt surpassed $30 trillion for the first time and set another record of $31 trillion mark by October. And Africa's debt is a negligible fraction of this and yet its impact is of colossal proportions.

Why are the US and the world not bothered by the huge US debt? The USA is a global supplier of its currency and the controller of global trade. It enjoys favorable conditions and lending rates, than what is faced by African countries. A great deal of US currency is held abroad, which amounts to an interest-free loan.

The US dollar became the international trading currency since 1944 after an agreement between the US and its allies at International Monetary Fund, the World Bank and others with its value pegged to gold.  So the global trading system has always favoured and afforded the greatest flexibility to the US and its allies, which enjoyed substantial freedom to pursue its domestic and international policy objectives that places it above other everyone else including manipulation of other economies.

Tapiwa Gomo is a development consultant based in Pretoria, South Africa. He writes here in his personal capacity.

Source - Newsday Zimbabwe
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