DEBT is a potent instrument of power, perhaps the most potent because, unlike physical power, it permeates every aspect of society.
The current international system is structured along the lines of globalisation and the neo-liberal philosophy of free trade, while being dominated by global institutions, particularly international financial institutions and other multinational organisations.
The post-Second World War international order established by the victorious allies has been significantly challenged over time. The framework of liberal political and economic rules, embodied in a network of international organisations and regulations, and shaped and enforced by the world's most powerful nations, has caused problems in a number of nations especially in Africa.
The Western view Africa as a scar on the conscience of humanity when they themselves forget that they are the co-authors of the continent`s misfortunes and challenges.
One of the significant challenges faced by African nations is the growing debt burden, emanating from the unequal and oppressive financial architecture as dictated by the International Monetary Fund (IMF) and the World Bank.
Under the current international rule-based system, African nations still only account for less than 10% of the vote on the IMF board, giving them very limited influence over World Bank and IMF policy.
IMF and World Bank have a significant impact on the daily lives of African citizens by imposing various structural adjustment programmes (SAPs) and austerity measures.
The exploitation through SAPs is carried out largely through the provision of active funds and loans to poor nations, rather than the reconstruction of their economies.
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This creates a cycle of fund after fund and loan after loan, paving the way for the widespread exploitation of third-world countries by making them dependent on loans, hence it is analogous to a firefighter attempting to extinguish a fire with petrol.
In Southern Africa, it is interesting to note that four countries in Southern Africa, Zimbabwe, Zambia, Mozambique and Malawi, have undergone structural adjustment programmes and austerity measures. In terms of happiness, Zimbabwe, Zambia and Malawi are among the 10 saddest countries in the world.
Under the IMF's reform conditions, governments in the four countries were required to terminate subsidies on essential commodities, making them less affordable for the poor; to cut budgets, which meant merely reducing public spending; and to privatise state-owned enterprises, which reduced employment. This has widened the inequality gap, increased poverty and retarded human development.
Equally, credit rating agencies have been implicitly supporting IMF and World Bank activities in Africa. In addition, for many years, Africa has been seen as a high-risk region, as credit-rating agencies have given most African countries scores below investment grade. A sequence of downgrades by credit-rating agencies has resulted in a greater number of African countries being classified as junk status, so further limiting their ability to get global financial resources.
The downgrades lead to higher risk premium being attached to Africa and default driven interest rates that have led to a debt trap for many African countries.
These interest rates are being raised despite African countries accounting for less than 1% of global sovereign debt. Due to financial repression, Africa has been unable to undergo structural transformation and is not effectively integrated into the current global financial system, which favours wealthy countries in terms of capital deployment and reserve currency issuance.
The 2019 IMF working paper, The Return of the Policy that Shall Not Be Named: Principals of Industrial Policy demonstrate that between 1960 and 2014, less than 10% (16 out of 182) of economies attained
high-income status. The 16 that did were divided into three categories: those that joined the European Union, those that discovered significant hydrocarbon reserves, and the Asian Tigers.
In contrast to Africa, Asian countries had access to reasonably priced financing, which facilitated the narrowing of significant disparities in both people and physical resources, resulting in economic diversification and better economic prospects.
The global financial system is broken and unfair, as it denies many African countries the debt relief and concessional funding that they require.
Over the past 50 years, the combined economies of the United States and Europe have dominated the global economy. The system's norms have evolved to permit the rise of new powers, but they have evolved disproportionately to maintain trans-Atlantic dominance.
The system's benefactors are only prepared to accommodate new participants if they retain their position as rule-takers. Contrary to this narrative, the African Forum and Network on Debt and Development (Afrodad) is driving towards Africa becoming a rule maker and not a rule taker.
Thus, it is necessary to remobilise the African continent towards a new order by giving evidence on the effects of debt on African economies.
To establish a world that could function for everyone, reforms are necessary, beginning with increased African representation and the cessation of IMF and World Bank`s Euro-centric leadership.
Any reform of the international financial system is unacceptable to Africa if it does not ensure equal access to capital, particularly affordable and long-term capital for investing in human resources, infrastructure, and the transition to green technologies. African governments and businesses need to have access to reliable and reasonably priced loans and move away from funding riddled with default-driven interest rates.
The IMF and World Bank should unequivocally shift away from the unsuccessful neoliberal economic model and cease enforcing austerity policies and restrictions on the public sector. Instead, the International Monetary Fund should provide assistance for debt cancellation and advocate for comprehensive and equitable tax reforms that safeguard the marginalised and vulnerable populations in Africa.
African nations should now prioritise the pursuit of alternative economic strategies that prioritise the provision of high-quality public services and promote social and economic fairness. The African Continental Free Trade Area (AfCFTA) is an important step towards ensuring economic independence and debt sustainability of African countries. AfCFTA, advocated by African leaders, promotes industrialisation by enhancing the availability of capital and facilitating the transfer of technology, thereby, expanding manufacturing output. This initiative also strengthens the ability of African countries to withstand adverse global shocks, leading to fiscal and debt sustainability and reducing the occurrence of balance-of-payments crises.
- Banda is an economist and academic. These weekly New Perspectives articles, published in the Zimbabwe Independent, are coordinated by Lovemore Kadenge, an independent consultant, managing consultant of Zawale Consultants (Pvt) Ltd, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe (CGI Zimbabwe). — [email protected] or mobile: +263 772 382 852.
