OBG talks to Donald Kaberuka, President, African Development Bank

Interview: Donald Kaberuka

What challenges do sub-Saharan African (sSA) governments face in terms of financial management?

DONALD KABERUKA: In the past six years African governments have been good examples of prudent public financial management – better examples than their European peers. For instance, Côte d'Ivoire’s overall fiscal deficit was at a mere 2.3% of GDP in 2013. However, sSA countries can be at risk if the deficit is financed by domestic borrowing, as this increases interest rates and squeezes small businesses. While sSA countries should have a good balance between recurrent expenditure and capital expenditure, they need to strengthen debt management capacity. Challenges for sSA governments can be summed up in how to get value for money: how to improve financial management to build infrastructure, reduce the cost of resources used, minimise inputs, maintain quality and achieve intended outcomes.

To what extent was debt relief in 2006 a success?

KABERUKA: Debt relief and clearance mechanisms have reduced the debt burden of many sSA governments, giving them the fiscal space to finance the long-term projects necessary to sustain growth. Several sSA countries have seen dramatic improvement in their balance sheets over the past 10-15 years, averaging strong growth of 5-6%. Yet to sustain these rates they would have to close the infrastructure gap. Most of the countries have used international capital market borrowing for projects with huge social benefits and a development impact, such as in the energy sector.

Do you share the IMF’s concerns over the rising debt burdens of African countries?

KABERUKA: The growing debt levels of poor countries impede development and perpetuate poverty. While debt relief initiatives have alleviated the burden in recent years, weak macroeconomic fundamentals, the global financial crisis and the growing accessibility of non-concessional financing will propel debt levels into the danger zone unless proactive measures are taken. One has to be concerned about the rising burden of African countries, given the huge impact unsustainable debt has had on these economies.

However, these concerns must be put in context. Many of the countries that are borrowing to close the infrastructure gap have introduced positive reforms in debt management, public financial management and overall governance. There is still work to be done, but the situation is far from what it was in the 1990s. Strengthening the long-term debt sustainability of low-income African countries is also a key challenge. The African Development Fund and its partners have been working to address the issue by helping countries escape or avoid debt, build their debt management capacity and access financing for development programmes at concessional rather than commercial rates.

How can public-private partnerships (PPPs) contribute to infrastructure financing in Africa?

KABERUKA: Substandard infrastructure is the main obstacle to sustained economic growth and development in Africa. In most countries, the need for infrastructure investment far exceeds the available financing. Financing requirements for Africa’s infrastructure are estimated at $100bn per year, but only $50m is spent. The burden for financing improvements in Africa’s infrastructure still falls disproportionately on government budgets, which shoulder 65% of the expenditure, while the private sector covers 20%, and traditional development partners and emerging markets another 15%.

The desire for greater efficiency and better services – and the limited public resources available to finance them – are increasingly leading governments towards PPPs. These can help governments overcome short-term budget constraints, as the capital cost of a project is spread over its lifetime, rather than incurred upfront. For more PPPs to emerge in Africa, countries need to improve their business environments. Major constraints exist, including inadequate legal and regulatory frameworks and a lack of technical skills to manage PPPs.