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UN: Debt in Eastern Africa is rising Rapidly, but Remains Manageable (05.08.2016)

East-Africa

The UNCTAD report was presented as a starting point for a discussion organized in Kigali by the Sub-Regional Office for Eastern Africa of the UN Economic Commission for Africa (ECA). 

DAKAR, Senegal, August 5, 2016 – In Eastern Africa, debt stocks have risen rapidly over the past five years, but debt ratios appear to remain manageable, according to the UNCTAD Economic Development in Africa 2016 Report on  “Debt Dynamics and Development Finance in Africa” which was released in July in Nairobi during UNCTAD 14.

The UNCTAD report was presented as a starting point for a discussion organized in Kigali by the Sub-Regional Office for Eastern Africa of the UN Economic Commission for Africa (ECA), with Leonard Rugwabiza, the Chief Economist at the Rwanda Ministry of Finance and Economic Planning, acting as the discussant.

Andrew Mold, a senior economist from ECA, recalled that it is estimated that an additional 600 billion USD is needed in Africa every year until 2030 in order to achieve the Sustainable Development Goals. Progress towards achieving such ambitious levels of additional finance can only be achieved by relying more on domestic resource mobilization, he argued, particularly since the prospects for ODA are not especially encouraging.

To underpin this point, preliminary econometric research conducted by ECA and presented by Andrew Mold suggests that growth performance in Eastern Africa over the last three decades has been stronger when supported by higher domestic savings, rather than being financed from external sources (such as FDI, debt, or ODA).

Between 2011 and 2014, the annual growth rate of external debt in Eastern Africa has been higher (13.3%) than the average for Sub-Saharan Africa (9%), However, as a percentage of GNI, debt levels are still sustainable, with only two countries in the region (Burundi and Djibouti) currently being deemed at high risk of debt default, according to a recent evaluation of the joint World Bank–International Monetary Fund Debt Sustainability Framework.

In order to increase domestic resource mobilisation, Eastern African countries will also want to stem more effectively illicit financial flows, which currently account for a loss of around -6% of GDP in Africa, according to UNCTAD estimates.

Similarly, remittances and diaspora savings could be leveraged more to provide financial resources in the region, especially in Kenya and Uganda.

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Press Release: African Countries Launch AFR100 to Restore 100 Million Hectares of Land (05.12.2015)

Green-Economies-Africa-rpt

Commitments from 10 countries announced at the Global Landscapes Forum

PARIS (December 6, 2015)—African countries launched AFR100 (African Forest Landscape Restoration Initiative), a pan-African, country-led effort to restore 100 million hectares (386 thousand square miles) of degraded and deforested landscapes by 2030. The AFR100 target of 100 million hectares has been endorsed by the African Union. So far 10 African countries have agreed to join AFR100 and committed at least 31.7 million hectares of land for forest landscape restoration. AFR100 partners are earmarking more than USD $1 billion in development finance and more than $540 million in private sector impact investment to support restoration activities.

The announcement was made during the Global Landscapes Forum at the Conference of Parties (COP21) in Paris, where forest landscape restoration is a key ingredient of the global movement to adapt to and mitigate climate change. Commitments made through AFR100 build on significant climate pledges made by many African countries to support a binding global climate agreement.

“Restoring our landscapes brings prosperity, security and opportunity,” said Dr. Vincent Biruta, Minister of Natural Resources in Rwanda. “With forest landscape restoration we’ve seen agricultural yields rise and farmers in our rural communities diversify their livelihoods and improve their well-being. Forest landscape restoration is not just an environmental strategy, it is an economic and social development strategy as well.”

For the first time, AFR100 brings together political leadership with an ambitious package of financial and technical resources to support a large-scale forest landscape restoration effort across Africa. Nine financial partners and 10 technical assistance providers have pledged support, led by the New Partnership for Africa’s Development (NEPAD Agency), Germany’s Federal Ministry for Economic Cooperation and Development (BMZ), and World Resources Institute (WRI).

“The scale of these new restoration commitments is unprecedented,” said Wanjira Mathai, Chair of the Green Belt Movement and daughter of Nobel Peace Prize Laureate Wangari Maathai. “I have seen restoration in communities both large and small across Africa, but the promise of a continent-wide movement is truly inspiring. Restoring landscapes will empower and enrich rural communities while providing downstream benefits to those in cities. Everybody wins. ”

Countries that have agreed to join the AFR100 initiative include:

• Democratic Republic of Congo | 8 million hectares
• Ethiopia | 15 million hectares
• Kenya | Committed, but finalizing hectare target
• Liberia | 1 million hectares
• Madagascar | Committed, but finalizing hectare target
• Malawi | Committed, but finalizing hectare target
• Niger | 3.2 million hectares
• Rwanda | 2 million hectares
• Togo | Committed, but finalizing hectare target
• Uganda | 2.5 million hectares

AFR100 builds on the climate commitments made by African countries. So far, 13 of the INDCs (Intended Nationally Determined Contributions) submitted by African countries include restoration, conservation of standing forests, or “climate-smart” agriculture. According to WRI analysis, following through on the commitments would cumulatively reduce emissions by 1.2 Gt CO2eq over the next 10 years, or 36 percent of Africa’s annual emissions and 0.25 percent of global emissions.

“Restoration is really Africa’s gift to the world,” said Dr. Andrew Steer, president and CEO, World Resources Institute. “As the world forges a climate agreement in Paris, African countries— which bear the least historic responsibility for climate change– are showing leadership with ambitious pledges to restore land. These countries are well on their way to meet the goal of restoring 100 million hectares of land, which will help sequester carbon and bring economic benefits to low-income, rural communities. These African leaders are turning their words into action and making a real contribution to respond to the global threat of climate change.”

AFR100 recognizes the benefits that forests and trees can provide in African landscapes: improved soil fertility and food security, greater availability and quality of water resources, reduced desertification, increased biodiversity, green jobs, economic growth, and increased capacity for climate change resilience and mitigation. Forest landscape restoration has the potential to improve livelihoods, especially for women. For example, 20 years ago, women in southern Niger spent an average of 2.5 hours daily collecting firewood, which was scarce in the degraded landscape. Now they prune on-farm trees saving two hours a day, time that can be spent on other income generating activities.

Commitments announced through AFR100 also support the Bonn Challenge, a global target to bring 150 million hectares of land into restoration by 2020 adopted in Germany in 2011, the New York Declaration on Forests that extends that challenge to 350 million hectares by 2030, and the African Resilient Landscapes Initiative (ARLI), an initiative to promote integrated landscape management with the goal of adapting to and mitigating climate change. With these new partners, the Bonn Challenge process has surpassed the 100 m hectare mark, on track to meet its goal well ahead of the 2020 target date.

AFR100 builds on a strong tradition of successful forest landscape restoration in Africa. In Ethiopia’s Tigray region, local communities have already restored over 1 million hectares, making the land more drought-resistant. In Niger, farmers have increased the number of on-farm trees across 5 million hectares of agricultural landscapes, improving food security for 2.5 million people. AFR100 will provide a forum for countries and communities to share knowledge and resources to achieve restoration at a greater scale.

“We know that restoration works for Africa. We’ve seen it work in countries as diverse as Malawi, Ethiopia, and Mali,” said Dr. Ibrahim Assane Mayaki, CEO of NEPAD and former Prime Minister of Niger. “But we need to scale up restoration across the whole continent- more than 700 million hectares of land in Africa have potential for restoration. AFR100 provides a platform to work together more effectively to accelerate the achievement of restoration successes to benefit tens of millions of people who are currently searching for ways to adapt to climate change and improve their well-being.”

AFR100 will help to translate ambitious commitments into action with support from private sector investors, foundations, development banks, and bilateral and multilateral funders. AFR100 will leverage a variety of financing, including grants, equity investments, loans, risk management guarantees and funds for specific interventions.

So far, AFR100 partners have set forth over USD $1 billion of development financing:

  • World Bank: USD $1 billion in investment in 14 African countries by 2030, as part of the Africa Climate Business Plan to support Africa’s climate resilient and low carbon development
  • Germany’s Federal Ministry for Economic Cooperation and Development (BMZ) is providing support for the development of the AFR100 initiative

Impact investors have already earmarked USD $546.5 million for restoration under AFR100:

  • Ecoplanet Bamboo: USD $175 million by 2020
  • Sustainable Forest Investments – Netherlands: USD $150m by 2030
  • Terra Global Capital: USD $100 million by 2030
  • Green World Ventures: USD $65 million by 2020
  • Moringa Partnership: USD $56.5 million by 2030
  • NatureVest (impact investment arm of the Nature Conservancy)
  • Permian Global

Through AFR100, we expect to trigger one of the largest investments in forest landscape restoration the world has ever seen,” said H.E. Dr. Gerd Müller, Federal Minister for Economic Cooperation and Development, Germany. “This investment is vital for empowering local communities to scale up the inspiring restoration successes we’ve seen in Africa over the last decade.”

In addition to new financing, a coalition of organizations will provide technical assistance on a wide range of activities, including the mapping of restoration opportunities, securing further financing, and implementing restoration efforts on the ground. Partners include World Resources Institute (WRI), Clinton Foundation, Food and Agriculture Organization of the United Nations (FAO), International Union for Conservation of Nature (IUCN), Jane Goodall Institute (JGI), Kijani, New Partnership for Africa’s Development (NEPAD Agency), The Landscapes for People, Food and Nature Initiative (LPFN), and The Nature Conservancy (TNC) and The Greenbelt Movement.

Uganda’s Medium Term Debt Management Strategy for FY 2015/2015 – FY 2019/2020: What is it all about?

UGX Pic

Here you will see what strategies and plans the Government of Uganda has made for their loans and debts. This is about how the Government will deal with it and how it can be done. The numbers tell what they can expect if they pick the certain ways of dealing with it. It shows what can happen and the shock scenarios are important.

This should be seen as important to follow especially with the growing debt and the rates that come with that. Therefore it will be something that should be monitored. From the sustainability of the ratio according the GDP should be something that also brings fear. Especially since this will have general effect on how the general economy will be hit with the down payments and strain the basic budgets of the government. There its a viable thing that should be well known by people, because this will have big importance until FY 2019/2020

“The Uganda Vision 2040 aspires to transform Uganda into a modern and prosperous society within 30 years through provision of adequate infrastructure, development of agriculture, human resources and services sectors, enlargement of markets, strengthening of the private sector and through industrialization” (…) “Implementation of the Uganda 2040 Vision will require substantial resources that will partly be garnered through the domestic and international borrowing. To ensure that our debt remain sustainable, such borrowing has to be carried out through a properly formulated Medium Term Debt Management Strategy (MTDS)” (MTDS, P: 4, 2015).

“The key aim for the MTDS2015 is to ascertain the cost and risk trade-off of financing the medium term fiscal deficit through borrowing while remaining mindful of our debt sustainability” (…) “To meet Government’s financing requirements at the minimum cost, subject to a prudent degree of risk; (ii) to ensure that the level of public debt remains sustainable, both in the medium and long term horizon while being mindful of future generations; and (iii) to promote the development of the domestic financial market (MTDS, P: 6, 2015).

Strategies:

  1. Traditional post debt relief approach of prioritizing concessional financing.
  2. A debut Euro-Bond: The Sovereign Bond Issuance which risks the cost and the trade-off of the International-Market and financing alternative.
  3. Non-Concessional borrowing and meeting with bilateral with commercial creditors negotiations.
  4. Reliance on Domestic-Financing establishing the cost and risk trade-offs, which risk less since it’s from the Domestic-Financial-Market.

(MTDS, P: 6-7, 2015).

Cost & Risk Debt Uganda

External Debt Stock:

From FY2006/2007 it was Domestic Debt and Outstanding(DoD) was US$1.47 billion. And in FY 2013/2014 had risen to US$4.3 billion (MTDS, P: 13, 2015).

External Debt Stock Uganda

Domestic Debt Stock:

Domestic Debt Stock

Refinancing:

External debt maturity for the ATM (Average Time for Maturity) was 18.9 Years. The plan is setting that the in 2.3 years will the ATM be 11.8 years.

Public Debt Maturity Profile under REFINANCING

Currencies:

Currency Distribution P17

Aggregrate Medium Term Debt Strategy:

The outlook for the 5.3% in FY 2014/2015 and is looking to reach 5.8% in FY 2015/2016. The plan forward is to attain an average 6.3% for the fiscal framework (MTDS, P: 17, 2015).

Selected Medium Term P18

Government expenditure is on an average to be 20.9% of the GDP for the FY 2014/2015. In the 2015/2016 it is 21.7% of the GDP. The main expenditure for the budget is the infrastructure projects like the upgrading of Entebbe International Airport, Hydro Power projects and Albertine Regional Airport. The total cost for the projects is US$7.0 Billion. There is set to be 5% target for the inflation rate and the exchange rate is set for 12.1% in FY 2015/2016 and average for 2.4% the rest of the years for the medium term (MTDS P: 17-18).

Stylized Financing Instruments:

Two instruments:

i: International Development Association (IDA) has the interest 0.75% for the maturity of 38 years.

ii: African Development Fund (ADF) has the interest 0.75% with a maturity of 40 years.

iv: The concessional is with fixed rate loans with 23 years maturity and 6 year grace period. These terms comes from IDA-Blend, Kuwait Fund, Abu Dhabi Fund, UK-Export Credit Guarantee.

v: The fixed rate instrument on the Euro Bond which is priced on a ten-years US-Treasury interest rate.

vii: With Pure commercial loans is a instruments with a 7 years of maturity and with a 3 years grace period.

viii: One T-Bills is a domestic market debt instrument that has a maturity of 91 days, 181 days,  and 364 days.

ix: Four T-Bonds is a domestic market debt instrument that has a maturity of 2, 5, 10 and 15 years.

(MTDS, P: 18-21, 2015).

Stylized Financing Strategy P22

Four scenarios for the Market:

First Scenario: The first thing is possible currency depreciation – is that in the FY 2015/2016 can end up with 30% depreciation and will have to work to sustain that through to 2019/2020.

Second Scenario: A sharp off increase in domestic rates for 2015/2016 and at the Interest Rate will follow the baseline of the Foreign Currency.

Third Scenario: Domestic Interest Rate still set to be baseline assumption that we’re set. And that the denomination on the Foreign Currency following the instruments set for it.

Fourth Scenario: That the Decapitation of the UGX towards the US Dollar in the amount of 15%, that can lead to a shock in the domestic yield a curve for the 2015/2016.

(MTDS, P: 23, 2015).

Analysis of the strategies:

That the total debt-to-GDP from the current level of 28.6% by the end of June 2014, if the end of the time it might end up with 50% level by 2020. This is because of substantial projected increases the fiscal deficit. With the worst strategy the interest rate can go from 1.4% in June 2014 to become 4% in 2020 (MTDS, P: 24, 2015).

MTDS P25

 

MTDS P29

 

MTDS P30

Hope you have found it interesting and learn something of the Government of Uganda planning of dealing with their debt. And how they see the future for their economy. Then what kind of strategies and scenario’s that could appear and how they will appear together. The Financial Years that are ahead and how the Ministry of Finance, Planning and Economic Development thinks of their economy. Hope it give you something and also a little feeling about how the economy might progress.

Peace.

Reference:

Republic of Uganda/Directorate of Debt & Cash Management – Ministry of Financing, Planning & Economic Development: ‘Medium Term Debt  Management Strategy’ (MTDS): 2015/2016 -2019/2020 (April 2015).

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