Tuesday 23 July 2019

When Irish rock stars can't fix a struggling economy

It seems the Jubilee 2000/Drop the Debt programme promoted by Bono hasn't worked for some African countries

Drop The Debt: But the Bono-led enthusiasm has not lasted the course
Drop The Debt: But the Bono-led enthusiasm has not lasted the course

Less than a decade after Ghana and Zambia had most of their debt written off, the two nations are struggling to finance their budgets and are under pressure to seek emergency loans from the IMF.

Government spending in Ghana and Zambia has been growing at what the IMF considers unsustainable levels, both countries had their debt ratings downgraded in the past year and their currencies were the worst performers in Africa against the dollar in the first half of the year.

Prompted by a global debt relief campaign led by the likes of Irish rock singer Bono, Ghana and Zambia were cleared since 2005 of debt of about $14bn owed to the IMF, World Bank and other global lenders.

Since then, both countries have racked up borrowing, including selling their first dollar bonds to tap rising demand from foreign investors searching for high-yielding debt.

As the funds flowed in, spending curbs weakened. "There's no question that Ghana and Zambia misbehaved badly during the boom years," Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mailed response to questions.

"They were among the naughtiest pupils in the class and they're now suffering the consequences."

Ghana's debt levels are set to reach 61pc of gross domestic product by December as the budget deficit exceeds 10pc for a third consecutive year, according to Fitch Ratings. The debt ratio was 26pc in 2006, data from the IMF shows.

The West African nation's currency has slumped 29pc against the dollar this year, inflation has soared to 15pc and the liquidity crunch is so severe that the central bank printed money to finance the government's budget gap in the first quarter.

"Nobody would have expected such a rapid increase in debt," Bernard Anaba, a policy analyst at the Integrated Social Development Centre, an Accra-based research group that lobbied for debt relief as part of the Jubilee 2000 campaign, says. "The debt relief gave us breathing space, but the campaign has been forgotten too soon."

Jubilee 2000 ran a program called Drop the Debt, supported by musicians such as Bono and Bob Geldof, to help persuade wealthier nations to cancel the outstanding loans of the world's poorest nations so that funds could be spent on health and schooling.

The campaign drew thousands of supporters at protests at G8 summits in the early 2000s, culminating in the Live 8 music concerts in 2005, aimed at drawing global attention to poverty in Africa.

Concern about rising indebtedness is too often focused on the borrowers and not the lenders, says Tim Jones, a London-based policy officer at the Jubilee Debt Campaign, a successor of Jubilee 2000.

"We are worried that there's a new round of irresponsible lending," he said. "This has been driven by a rise in aid money being used as loans rather than grants and by lax monetary policies in the US and in Europe."

Ghana's government has scrapped fuel subsidies and imposed a moratorium on new contracts in an effort to curb spending.

Zambia's crisis is less severe and more recent. The fiscal gap widened to 6.8pc of GDP in 2013 from an average of just 2.3pc between 2005 and 2012. Government debt is forecast by Fitch to remain at 31pc to 33pc of GDP until 2015.

Zambia's government said last month it will discuss a new aid program with the IMF that will seek to rein in the budget deficit. Their currency - the kwacha - has gained 2.9pc against the dollar this month, paring its decline this year to 9.5pc.

"Ghana's had more of a prolonged history of fiscal slippage over the years; that's meant that relations with the IMF have become more tense over time," says David Cowan, director of economic and market analysis at Citigroup in London.

"Zambia comes to this with a slightly different history,"he said. "Its relationship with the fund has seen its economy improve drastically in the last decade by following fund policy advice."


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