High Public Debt & Inequality: Quest to Equalise
A rise in the cost of living is expected to further erode real incomes and weaken domestic demand in many African countries.
AN OPINION
One thing that almost everyone around the world, and especially in Africa, has experienced at some point in their lives, including today, is having experienced lack at some point in their lives.
Without a doubt, millions of people cannot afford a single meal, many are stranded because they are sick and cannot access medical care, and an even larger number of people are illiterate because they cannot afford education.
What is sickening is that while some are literally dying or missing out on many economic and civic opportunities, others have so much that they don't know what to do with it.
In fact, knowing that humans and animals share some characteristics, I examined the most greedy animals and discovered that the majority of them gather more than they require.
Don't you know people who have no idea what "enough" means? They are the ones who fuel all forms of inequality that we see and hear about or experience ourselves.
In this write-up, I'm looking at how high public debt exacerbates inequality and deepens poverty.
State of Africa’s Public Debt
Prior to COVID-19, debt was a growing issue in many African countries, and the pandemic only exacerbated the situation. As of August 2022, eight countries are in debt distress, while 29 are at high risk, for a total of 37 struggling countries, an increase from 34 in 2020. This equates to more than 60% of the region's countries.
Contrary to the African Borrowing Charter's recommendation that the total stock of public debt not exceed 70% of GDP in any given year, there are more than 16 countries with a higher GDP than recommended, and figures must have increased since the last publication.
Furthermore, a lack of debt transparency is a concerning trend because it implies that the situation may be worse than it appears on available data. In most low-income countries, keeping track of public debt has become nearly impossible.
This is due to issues with incomplete data reported in official statistics, as well as limitations imposed by confidentiality clauses commonly signed as part of some loan agreements.
Lack of fiscal transparency jeopardises legislators, the private sector, civil society organisations, and the general public, all of whom need to assess their economic prospects and hold governments accountable for their governance decisions.
Public Debt and Inequality
You may have heard people complain about how the cost of living has risen over time. Indeed, if you enjoy working with budgets and keeping track of your expenses, you have probably noticed that the amount that was sufficient for a specific budget line five or more years ago is no longer sufficient.
Many people have to dig deeper in their pockets or bags, but as you may know, the latter does not grow in proportion to basic life demands. Many families have reduced their meals from three to two, with one receiving none for days. Famine is still occurring in various parts of Africa.
Most African countries spend more on debt services and very little on social services like education and health care combined.
High debt payments and cuts in government spending make it more difficult to provide high-quality public services such as healthcare and education, resulting in social inequality.
Rising debt levels have corresponded with rising debt service costs, but countries' ability to finance such obligations has not necessarily improved.
In reality, too much debt means that governments are borrowing into their future economic lives, and future generations will spend the majority of their time servicing the debt rather than enjoying life or exercising their other human rights.
Many African governments are having to use an increasing portion of their budget to service growing debts rather than invest in their populations, which is a common occurrence. Debt servicing has reached alarming proportions in many African countries.
A rise in the cost of living is expected to further erode real incomes and weaken domestic demand in many African countries.
The accompanying rise in poverty is especially concerning in countries where many people are already at risk of food insecurity (Democratic Republic of Congo, Kenya, Ethiopia, Liberia, Madagascar, Nigeria, Sierra Leone, Zimbabwe, among others). The public debt is a bill for services rendered by the have-nots.
There must be a Cure to the Debt Disease
Many recommendations have been made over the years, and one sometimes wonders if anyone pays attention when issues of responsible borrowing and spending of public funds are raised.
Even the majority of countries that benefited from the Heavily Indebted Poor Countries (HIPC) Initiative in 1996, a programme designed to ensure that the world's poorest countries are not overwhelmed by unmanageable or unsustainable debt burdens, have relapsed into high debt or debt crisis.
As a result, there are numerous loose ends that must be tied, and I will only mention a few of them:
*As the saying goes, it takes two to tango. Because the issue of unsustainable debt affects both borrowers and lenders, creditors must participate fully. Indeed, long-term debt sustainability necessitates efforts on the part of both borrowers and lenders to promote prudent borrowing, sustained economic growth, diverse exports, and greater access to developed-country markets.
*Improved budget transparency and debt management systems are required.
*The distributive aspect of fiscal policy must be improved to ensure that higher-income households and firms are taxed more than lower-income households and firms and that resources are channelled to social protection and social safety nets.
The African Borrowing Charter offers further recommendations, few of them being:
• Putting in place an efficient debt management system; keeping a reliable database of all loans taken out or guaranteed by the government.
• Developing and implementing plans for effective external and domestic debt management.
• Reducing the cost of government borrowing and forecasting loan servicing obligations for each fiscal year.
• Securing the development outcomes of borrowed resources
• Fostering the growth of market institutions for government debt securities.
• Maintaining the Fiscal Responsibility Act-mandated debt-to-GDP ratio.
• Ensuring that the benefits and costs of public debt are shared by current and future generations.
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