London, United Kingdom, 02 May – Debt pardons by the International Monetary Fund (IMF) to African countries such as Mozambique is not enough to make it possible to generate funds to achieve Millennium development targets, debt rating company Standard & Poor’s (S&P) has said.
In its latest report, presented in London last week, S&P said that African countries should use alternative forms of financing, such as local and international capital markets, as well as obtaining subsidies and loans, to generate the funds required to invest in infrastructures and development.
According to figures from the United Nations Development Program, which worked on the report with S&P, most of the countries covered by the support program for Heavily Indebted Poor Countries (HIPC), which will benefit from the debt drop, will have to obtain funds equivalent to 20 percent of their gross domestic product (GDP) to finance the fulfillment of the economic and social targets put forward by the UN.
The HIPC initiative currently includes three Portuguese-speaking countries: Mozambique, Guinea Bissau and Sao Tome and Principe.
“Even if developed countries increase their cooperation budgets to 0.7 percent of GDP, at the latest by 2015, the costs of achieving the necessary targets are still facing a considerable deficit,” said Farouk Soussa, S&P’s director for Africa.
“Access to international capital markets could give these countries the possibility of having a greater voice in their own financing decisions, and this possibility has been boosted by lower levels of debt, macroeconomic stability and prudent policy prospects, anchored to undergoing IMF programs,” Soussa added.
He said, however, that the deficit could not entirely be fulfilled in this way, otherwise the ratio of debt servicing to revenue would increase to 40 percent in some cases.
In order to prevent “unsustainable levels of foreign debt,” Soussa said the countries “will have to develop their domestic capital markets,” encouraging debt servicing in local currency, of which they had greater control, on both a fiscal and regulatory level.
“For countries in which the government’s debt capacity is relatively small, or the investor base is too small to support a local and dynamic debt market, regional integration and centralization of capital markets could be beneficial,” he added.
The IMF plans to drop the debt of 19 countries included in the HIPC program, including Mozambique, to a total value of US$3 billion, the Fund decided at the end of 2005. (macauhub)