Cape Verde’s Deputy Prime Minister and Finance Minister warned on Thursday that public debt “is an atomic bomb” for Africa, exemplifying that the archipelago spends 60% of its revenues on debt interest alone.
“Public debt is an atomic bomb heading towards the African continent, towards several countries, especially after the start of the pandemic; we cannot have an economy that works only to pay interest, and the small islands were the most affected by the pandemic,” said Olavo Correia, during his speech at the African Economic Conference, taking place on the island of Sal, Cape Verde.
The Finance Minister gave the example of Cape Verde to argue that the unsustainability of public debt is not just a question of numbers, but a dangerous brake on the growth of African economies.
“Today we are paying 24 billion escudos [217 million euros] in debt servicing for tax revenues of around 40 billion escudos [362 million euros], which means that 60 percent of Cape Verde’s tax revenues are allocated only to debt servicing. This is an atomic bomb, it is not sustainable for Cape Verde, the most dramatic case, but also for other countries,” he warned.
During his speech, Correia also said that the African Union should follow the example of the European Union, specifically helping States in greater difficulties from an economic point of view, and considered that defence and security should not be the only priorities in Addis Ababa.
“We have to follow the example of the European Union, which mobilises debt and then helps states, why doesn’t the African Union do the same?
Public debt occupied much of the speech by the Finance Minister of Cape Verde, the African country with the highest debt-to-GDP ratio, at around 150 percent, according to the International Monetary Fund’s latest estimates.
“The first step towards sustainable debt is to bear in mind that African countries are among the lowest in the world in terms of raising taxes per capita, and to mobilise more endogenous resources through a modern and intelligent tax machine, with new technologies and effectively combating fraud and tax evasion,” he argued.
Afterwards, he added, “it is necessary to guarantee transparency in the justification of the use of resources, we have to be rational in the execution of the debt, every dollar spent has to be explained to the people”.
In the speech, Olavo Correia also defended the extension of the moratorium on debt service in 2022, criticising the fact that this postponement of public debt payments will end at the end of this year.
“2022 will be more difficult than 2021 and 2020, and there is no talk of extending the moratorium, which is very strange,” he said, concluding that “Africa needs a strong voice at the global level on financial issues.”
The second edition of the African Economic Conference brings together governments, investors and academics from African countries on the island of Sal to discuss the challenges of financing the continent in the aftermath of the covid-19 pandemic.
The event, held in a hybrid format – in person and by videoconference – is jointly organised by the United Nations Economic Commission for Africa, the African Development Bank and the United Nations Development Programme (UNDP).
“Financing Africa’s development post-covid-19” is the theme of the conference which is the continent’s premier annual economic gathering.
