Latest report shows African countries are burdened with debts linked to commodities

Latest report shows African countries are burdened with debts linked to commodities

- Concerns have been raised about Africa's rising debts which are usually linked to commodities such as natural resources

- This comes in the wake of concerns raised by David Malpass, the president of the World Bank about rising debt levels

- The World Bank reported that Africa’s debts climbed by about 150% from $236 billion in 2008 to over $583 billion in 10 years

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It has emerged that the bulk of debts accumulated by African countries are linked to commodities.

A month ago, the president of the World Bank, David Malpass, noted that some African countries continue to pile debts.

He added that there was an apparent lack of transparency in some loan deals reached with China.

READ ALSO: Africa's rising debt level causes tension between the World Bank and lenders

Qz.com reports that Africa’s debts climbed by about 150% from $236 billion in 2008 to over $583 billion 10 years later, according to the World Bank.

A substantive proportion of the debts are resource-backed loans that are agreed upon between the lender, usually China in recent years, and the resource producer.

A resource-backed loan is an arrangement in which a country gives out its natural resources such as oils or minerals in exchange for or collateralized by funding.

The Natural Resource Governance Institute (NRGI) recently revealed that 30 of 52 resource-backed loans, with a value of $65.8 billion, and arranged between 2004 and 2018, were made to Sub-Saharan countries. The total value of the 52 loans was estimated at over $164 billion.

READ ALSO: Commercial banks in Ghana realize GHC3.3 billion profit in 2019

A director at the NRGI, Evelyne Tsague, opined that such loans are often taken by African leaders in a bid to finance their short-term political ambitions.

In that respect, she went on, the countries end up severely indebted and risk losing the collateral which is worth more than the value of the loan itself.

In other news, the World Bank Country Director, Pierre Frank LaPorte, has expressed worry over the rising levels of Ghana’s debts.

According to him, if the country’s debt is not immediately checked, Ghana could soon return to HIPC.

He attributed the country’s rising debts to the government’s increased borrowing to pay outstanding debts without reinvesting the monies.

This, Mr. LaPorte said, is risky, especially for a country like Ghana which is an emerging economy. He was speaking at the World Bank’s Economic Marathon held in Accra on Thursday, July 25, 2019.

READ ALSO: Minister announces GHC1.7 billion package from gov't and financial institutions for 1D 1F

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Source: Yen

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