Financing for Development

Is Africa’s Fiscal Space Undermined by Debt related Illicit Financial Flows?

Lyla Latif — Sat, 03 Sep 2022 20:01:01 +0000

Fiscal activism relates to the extent to which African governments can generate revenue to meet their financing needs. It is, therefore, a priority policy issue at all levels of governance both domestically and globally. Usually, every government is exposed to revenue shortfall which undermines their efforts and planning towards securing a sustainable socio-economic environment which is buttressed by efficient political frameworks and strong financial sectors. To guard against fiscal limitations, governments borrow. However, unchecked borrowing, borrowing utilised for non-economic activities that do not result in returns, but which are instead diverted towards private use and borrowing that results in the creditor looking at a debtor state as a pathway towards monetising the debt and earning more out of what is loaned, goes against the very idea of fiscal activism. A government borrows so that it has enough to run the state and its society. Consequently, this paper argues that debt can have the effect of supporting the African fiscal base, but it can also undermine the fiscal space by eroding it. This happens when debt creates an enabling environment for illicit financial flows to thrive or sneak into a country’s legal system. To explain this, the paper discusses how much of the African debt has been aggravated by historical injustices in the form of colonial and odious debts, emergence of vulture funds, lack of thin capitalisation rules, debt to equity swaps, lack of fiscal transparency and accountability for resource backed loans all which culminates into an environment that fosters opportunities for illicit finance or untaxed gains made out of manipulating the debt and the legal framework within which it operates.

RESOLVING THE DEBT SUSTAINABILITY ISSUES FROM A LEGAL AND INSTITUTIONAL PERSPECTIVE: A KENYAN CASE STUDY

Winnie Gloria Nkatha — Sat, 03 Sep 2022 20:01:48 +0000

The paper argues that the promulgation of the Constitution of Kenya 2010, the enactment of the enabling domestic laws,1and the medium-term debt management strategies prepared by the Kenyan Ministry of Finance has not helped much in terms of transforming the management of public debt in Kenya. The paper attributes this to a set of inter-related factors, mainly the failure by Parliament to enforce legislative measures. The paper further observes that failure by Parliament to objectively conduct oversight in the process of public debt management has led to the adoption of public debt policies which undermine human rights. In addition, it is indicated that the country loses significant revenue through illicit financial flows, which if the loopholes facilitating such are sealed, could steer the country towards a sustainable public debt.

RESOLVING THE DEBT SUSTAINABILITY ISSUES FROM A LEGAL AND INSTITUTIONAL PERSPECTIVE: A FOCUS ON EAST AFRICA

Winnie Kemunto Mageto — Sat, 03 Sep 2022 20:01:34 +0000

This paper examines debt sustainability in eastern Africa. Four objectives guide the investigation focused on these countries. First, to carry out a situation analysis of debt sustainability. Second, to review the legal and institutional perspectives which promote debt sustainability. Third, to assess public debt composition, and fourth, to review the measures that have been undertaken to enhance public debt sustainability. Generally, the argument is made that public debt is sustainable in Uganda, Kenya, Tanzania and Rwanda. But these countries are exposed to risks such as foreign exchange, refinancing risks and liquidly risks, which may negatively impact on their debt sustainability.

Special Drawing Rights And Its Impact On Economic Justice, Towards Reconstructing The New African Economic Order

Learnmore Nyamudzanga — Sat, 03 Sep 2022 20:02:28 +0000

Foreign debt continues to undermine Africa’s progress towards the attainment of human rights. Consequently, this research paper considers whether funds accessible through Special Drawing Rights (SDR) can be allocated towards African States facing revenue shortfalls instead of relying on foreign debt. It also looks at how SDR can support reconstruction of a new economic order in Africa. The paper finds that SDR allocation offers some sort of financial relief to African States who are members of the International Monetary Fund. The paper argues that a huge SDR allocation has the potential to support reconstruction of a new economic order in Africa. To achieve this, African States should continue to push for a fairer SDR allocation system, redistribution of unused SDRs to debt distressed African nations and formation of a Resilience and Sustainability Trust that will offer unconditional and cost free loans. In the meantime, there is a need for strong domestic reforms and debt restructuring even on humanitarian basis since financing by the international community seems to be a challenge.

Achieving Social and Economic Sustainability using Islamic Social Finance: A Kenyan Case Study

Omar Saleh — Sat, 03 Sep 2022 20:02:15 +0000

Poverty continues to remain a social and economic challenge in Kenya. This paper examines whether Kenya can progress towards social and economic sustainability by recourse to Islamic social finance instruments, such as zakah (Islamic wealth tax) and waqf (charitable endowment), to alleviate poverty. The objective is to seek alternative sources of revenue for the government, which can be mobilized locally without relying on foreign debt to channel these resources towards supporting access to finance for people living in poverty. Structured questions were disseminated through an online survey to gather data on the practicability of proposing Islamic social finance to achieve social and economic sustainability in Kenya. Key among the findings is the estimation of zakat paid by Muslims in Kenya, which is approximately USD234.1 million dollars (0.2% of the GDP). A substantial amount can be utilized towards mitigating government budget deficits. However, before Islamic social finance can be properly leveraged as an alternative source of revenue for the government, there is a need first to raise awareness among Muslims and policymakers about the enormous potential of these instruments for social development within Kenya.

PUBLIC PARTICIPATION IN FISCAL DECISIONS ON FOREIGN DEBT

Sat, 03 Sep 2022 19:45:15 +0000

This study reviews the legal framework on public participation in six Sub-Saharan African countries to establish whether public participation impacts the state’s decision on accruing external debt. The need for public participation in fiscal decisions related to debt is crucial since it acts as a check against potential future welfare implication of debt piling, default risk and any macro-economic implications posed by debt. Although several African countries have recorded remarkable progress in legislations aimed at promoting public participation, recorded scores do not reflect a remarkable growth in public participation. Therefore, this paper addresses whether the lack of public participation in fiscal policy making has implications for fiscal decisions on debt. The paper argues that with public participation being a fundamental right, it is recommended that African countries should act beyond legislation to actual and effective implementation of public participation in fiscal decisions. Moreover, authorities in Africa should embrace open and inclusive public participation to offer the public and civil society a chance to submit their inputs when government policies are formulated, to enhance fiscal transparency, accountability, and better fiscal outcomes.

THE TENSION AROUND THE RIGHT TO INFORMATION VERSUS NON-DISCLOSURE CLAUSES IN LOAN CONTRACTS

Stella Nasirumbi — Sat, 03 Sep 2022 20:00:45 +0000

Most African countries are crumbling under the weight of foreign debt. Yet these governments rely on debt as their largest financial portfolio,1 as is the case even with developed economies. However, the problem lies in the way debt portfolios are structured. One of the big conversations around the topic of debt management is the lack of transparency - and in particular, non-disclosure clauses in government loan contracts. Against this backdrop, is the right of a state’s citizenry to access public information, especially, concerning debt agreements entered by the government on behalf of and for their benefit. This paper delves into the legal framework underpinning the right to information, the status of implementation of this right in African countries and why access to information is important for the citizenry, governments, lenders, and all other debt stakeholders. The paper also discusses the limitations on the right to information and how those limitations have and can be used by governments to justify retention of non-disclosure clauses in loan contracts. Further, the paper demonstrates how it is not enough to have access to information laws because poor or inconsistent implementation of these laws jeopardises citizens’ access to information. To better understand why lenders and borrowers favour disclosure over transparency, this paper considers the various forms that non-disclosure takes and the practice of different lenders in this regard. It goes on to give examples of the consequences of non-disclosure and the potential benefits of voluntary and proactive disclosure by governments, including some good practices from a few African states. The paper concludes by proposing a framework for disclosure by African governments, their creditors, and other stakeholders.

The Impact of Foreign Debt on Economic and Social Rights: A Case Study on the Right to Health in Kenya, Nigeria and Zambia

Vallarie Yiega — Sat, 03 Sep 2022 00:00:00 +0000

While economic and social rights (ESR) are recognized in national and international law, their enjoyment in some African countries is constrained. This results out of corruption and mismanagement of available funds and is further impacted upon by foreign debt, which plays a substantial role in limiting access to resources needed to fund government services. The link between government services and human rights is evident particularly with respect to ESR. For example, the right to health can progressively be achieved if a government invests adequately in the healthcare sector by ensuring availability of adequate healthcare workers to cater for patients. Countries that take on significant foreign debt direct a large part of government resources towards its servicing which then reduces spending on essential public goods and services. This paper studies Kenya, Nigeria and Zambia to understand whether there is a connection between the amount of funds allocated to ESR, specifically the right to health, and the amounts spent servicing foreign debt. External debt has conditions attached which further erode progress towards implementing ESR. The primary remedies to address growing foreign debt discussed in this paper include restructuring the debt and ensuring the proper management of available resources. If the adverse impact of foreign debt is not recognized, the realisation of ESR will continue to be constrained in Africa.