Central Bank raises eyebrow about emergence of China, India as “new creditors” to poor countries

The Central Bank of The Gambia has expressed concern about the emergence of countries such as China and India as new credit sources to Low Income Countries (LICs), like The Gambia, saying it has “raised new risks and challenges” to the borrowing countries. China and India are becoming the major creditors for most of the Low Income Countries, including those in the sub-Saharan Africa, as the financial crisis have limited the ability of the financing sources like the World Bank and International Monetary Fund, to give loan. The Governor of Central Bank of The Gambia, Mr Amadou Colley, while acknowledging the “opportunities” presented by these creditors, said if the borrowing process is not properly articulated, planned and executed, debt can quickly become sustainable and problematic. Governor Colley made this statement at the opening ceremony of a-five day training on medium term debt strategy for English speaking West African countries organized by West African Institute for Finance and Economic Management (WAIFEM) in collaboration with the World Bank and International Monetary Fund. The training, underway at Kairaba Beach Hotel, is aimed at providing participants with the requisite skills for developing a comprehensive debt management strategy, which aims at strengthening capacity in the methodology of medium term debt strategy. The MTDS, developed by the World Bank and IMF, provides a framework for formulating and implementing a debt management strategy for a country.  The MTDS tool primarily focuses on determining the appropriate composition of the debt portfolio, taking into account macroeconomic indicators and market environment. “Maintenance of debt at sustainable level while achieving growth is one of the most critical issues of overarching importance to public financial management in developing countries,” Central Bank Governor said, adding: “Debt management has grown in complexity in recent times as the scarcity of concessionary financing has caused many developing countries to increasingly turn to commercial sources of credit.” While emphasizing that borrowing process have to be properly articulated, Governor Colley explained that in the past many countries got into debt difficulties and debt overhang as a result of inappropriate borrowing strategies including on the terms and structure of new debt. Prof Akpan H. Ekpo, director general of WAIFEM, said developing countries face various policy, institutional, and operational challenges due to weak management capacity and lack of efficient debt markets. In a statement read on his behalf by Baba Y Musa of WAIFEM, Prof Ekpo said the MTDS is a fiscal management tool that a country can use to evaluate its debt financing option given the dynamics of its macroeconomic situation. He said the MDTS can help a sovereign country to avoid “expensive mistakes” through evaluation of the cost-risk trade off.  “That is to say it identify the optimal way to meet the government financing requirement at least cost with prudent degree of risk or risk measurement,” he explained. He said the tool can also help a country to consider a range of alternate debt management strategies and assess the performance of the strategies on the basis of cost and risk to enable it to identify preferred strategy. Eriko Togo, senior economist at the World Bank, said debt management cannot be treated in isolation, saying “it’s about transparency and accountability to the public”. Christian Mulder of the IMF expresses his optimism about Africa noting that institutions in the continent are developing and technology is also improving. “While there is a long way to travel, we need to keep building these institutions, to develop skills of personnel to make sound and critical decisions without mistakes,” he said. The workshop combines lectures and hands-on exercise using a spreadsheet analytical tool to illustrate how a medium-term debt management strategy can be developed, taking into account a country’s macroeconomic constraints and the market environment.