New funds to help poor nations manage debt and build infrastructure

Out-Law News | 19 Mar 2014 | 9:54 am | 2 min. read

Countries including Cape Verde, Cote d’Ivoire, Ethiopia, Ghana and Kenya will be able to access new funds to help them manage national debts. 

A new phase of the multi-donor Debt Management Facility, DMF II, is to launch next month, marking a new partnership between the World Bank and the International Monetary Fund (IMF). A number of African countries are eligible for DMF II funding (1-page / 83 KB PDF).

DMF II, with $10 million in new funding, will extend the work of the first DMF – a $22m trust fund launched by the World Bank in 2008 – and African nations are among those set to benefit from the facility.

Abha Prasad, a senior debt specialist at the World Bank, which manages the trust fund, said the World Bank’s partnership with the IMF, through DMF II, would expand the programme and offer new services

Prasad said: “The sovereign debt world can be complex, and the World Bank realised that low-income countries could improve their chances of staying on track with training on how to assess risks, better negotiate loan terms, and recognise the risks of borrowing from non-traditional creditors.”

He added: “This acumen, in turn, could help the recipient countries spend their money in more productive ways: building infrastructure, providing access to clean water, and performing other functions essential to economic growth and poverty-reduction.”

According to the IMF’s Regional Economic Outlook for sub-Saharan Africa, released in May 2013, access to capital markets in the region has grown significantly in recent years, “facilitated by easy global financial conditions”.

The IMF said: “By the end of March 2013, a diverse array of 11 countries in the region had issued international sovereign bonds, for reasons that include infrastructure building, benchmarking and debt restructuring.”

According to the IMF all sub-Saharan African countries, except for South Africa, have denominated their sovereign bonds in US dollars. “Most sovereign bonds have exceeded the minimum threshold of $500m, which is typically required for inclusions in global bond indices. Maturities have typically been about 10 years,” the IMF said.

Over the past five years, the DMF has provided training to more than 600 officials across 70 countries. The work of the trust fund ranges from technical training for debt managers to expert guidance on formulating debt management reform plans. It also funds country-based assessments of debt management performance and helps countries develop individual debt strategies.

In addition to improving the public officials’ technical skills, the training and exposure to experts also “empowers them to avoid unreliable creditors and resist pressure from political leaders”, the World Bank said.

DMF is supported by the governments of Austria, Belgium, Canada, Germany, Netherlands, Norway, and Switzerland, as well as the African Development Bank and the European Union, represented by the European Commission. The total amount of donor contributions to the facility as of February 2014 was nearly $22m.

In 2011, the Organisation for Economic Co-operation and Development (OECD) and South Africa announced the creation of the first African sovereign debt management centre, which started operations in June of that year in Midrand, South Africa.

The OECD’s latest statistical yearbook for central government debt in Africa was published in November 2013. Commenting on the yearbook, the OECD said: “Cross-border government borrowings have become more significant. Government debt instruments attract both institutional and retail investors and have an important share in the portfolios of both domestic and foreign fund managers.”