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World Bank cautions against lack of transparency

Publishing Date : 09 December, 2019

Author : KENNETH MOSEKIEMANG

World Bank Botswana Country representative and Special Envoy to SADC Xavier Furtado has urged developing countries to exercises transparency and openness when exploring borrowing opportunities to finance their national development agenda, mega projects and government spending.


Furtado was delivering a key note address at the Africa Securities and Exchanges Association Conference held in Kasane last week. He said currently economies are facing substantial challenges that are clouding the global economic outlook in both the near and long term. In particular for emerging market and developing economies lackluster investment is increasingly becoming a concerning issue.


Xavier noted that in these economies which African countries form part of , investment growth is expected to remain weak and below historical averages, held back by sluggish global growth; limited fiscal space; and structural constraints that misallocate or discourage investment such as poor business environments, labor and product market controls, and weak governance. “Subdued investment weakens the foundations for the sustained growth that is needed to alleviate extreme poverty and advance shared prosperity,” he said.


According to the World Bank Botswana Boss in response to these challenges and an era of low interest rates, government borrowing might appear to be an attractive option to finance growth-enhancing investment projects. In Botswana government debt is constituted by both external and domestic borrowing s with the latter dominated by government treasury bills and issuance of bonds to the local capital market. Government through Bank of Botswana regularly issues bonds on Botswana Stock Exchange to finance various expenditure needs.


For external Borrowings Botswana explores debt facilities from international financing organizations such as the World Bank International Finance Corporation (IFC), African Development Bank, and First World Economies to finance mega infrastructural projects for basic necessities such as provisions of water, transportation amongst others.


Botswana and many African countries has been tapping into the over $60 billion credit facility extended by Chinese government for interest loans towards multi million pula projects. In particular Botswana is set to rope in over P10 billion from China for mega rail and road infrastructure development. Xavier Furtado says debt is often an important tool for development and poverty reduction, and sustainable borrowing can help countries finance investments in infrastructure, health, education, and other essential areas.


He underscored that to be additive to growth, however, debt has to be transparent and well managed.  The contrary according to the Furtado would only render debt into becoming more of a burden than a benefit by increasing vulnerability to crises, eroding the effectiveness of macroeconomic policy, and weighing on investment and growth.


Furtado explained that local capital markets are increasingly growing as source of funding for both the corporate and public sectors. He noted that for the markets to be developed there is broad agreement that improvements in market infrastructure and transparency, better corporate governance, and the development of benchmarks and domestic institutional investors all contribute to the development of local securities markets.


“In light of these happenings we believe that opportunities abound across many emerging markets sectors.  To foster growth, we need to connect investors to products that build human and physical capital which can be achieved through improving capital market activity,” he said.
In their recently published report on African Debt Management Organisation of Economic Corporation & Development (OECD) says African counties rely on concessional multilateral and bilateral funding and rudimentary domestic markets.


Greg Horman of the OECD Secretariat says issuance of domestic debt in some countries is erratic and in small volumes, leading to problems in developing fungible and liquid instruments and benchmarks. Horman further noted that African countries generally have explicit legal requirements governing debt contracting and servicing, underscoring that the framework is not always clearly defined and adequately implemented.


“Institutional responsibilities are often fragmented across front and back office functions, across domestic and external debt, and across agencies in African countries,” he said. The OECD also observed that Middle office functions of debt strategy formulation and risk management are often absent .These factors according to Greg Horman impede implementing a holistic approach to debt management because co-ordination between debt management and fiscal, monetary, and macroeconomic policies is often weak.


“Specific institutional structure for debt management is less important than ensuring that that there is good governance and that there are forward-looking policies focused on risk-based debt sustainability,” he said. He observes that debt management is key component of a correct policy mix however noting that Debt management alone cannot solve macroeconomic imbalances or structural problems. “An appropriate debt level and debt structure, as well as healthy domestic markets, can contribute to reducing vulnerabilities,” he said.

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