UN urges eastern Africa to fund more development domestically

8 Aug 16

Eastern Africa should look to fund development using domestic savings and remittances rather than debt, foreign direct investment or aid, the United Nations has said.

At a conference in Rwanda last week, Andrew Mold, a senior economist from the UN Economic Commission for Africa, argued that only by relying on domestic revenue mobilisation will the region meet the substantial levels of funding it needs.

Africa as a whole needs an additional $600bn every year until 2030 to meet the Sustainable Development Goals, and Mold said the prospect of official aid meeting this target was not especially encouraging.

Underpinning this, the UNECA also pointed to some of its own research that suggests eastern Africa’s growth over the past three decades has been stronger when it has been supported by higher domestic savings rather than external financing, for example, aid, FDI or debt.

Countries in the region should also do more to prevent illicit flows of money leaving the country, for example, from tax avoidance. Currently, it is estimated this accounts for a loss of around 6% of GDP for Africa as a whole.

But remittances, which stood at just under 8% of GDP in 2015, dwarf both this and flows of official aid to the continent. These, and diaspora savings, could be leveraged to provide more finances for the region, especially in Kenya and Uganda, UNECA said.

The conference in Rwanda also saw the launch of a UN Conference on Trade and Development Report into eastern Africa’s debt dynamics.

While the region has a higher growth rate of external debt compared to the sub-Saharan African average – 13.3% compared to 9% – as a percentage of gross national income, debt levels are still sustainable, the report found.

This was true for all but two countries, Burundi and Djibouti. A recent evaluation under the World Bank and International Monetary Fund’s joint debt sustainability framework, found these two economies were at high risk of default. 

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