Moody’s: Rising debt burdens raising sustainability concerns in ECOWAS region

Moody’s Investors Service has raised concerns over rising debt burdens in the Economic Community of West African States (ECOWAS) region, leading to questions about debt sustainability. Lucie Villa, Vice President and Sovereign Analyst at Moody’s, discussed these issues in an interview with CNBC Africa's Kenneth Igbomor. According to Villa, the debt ratios in ECOWAS member states have more than doubled in the past decade, a trend that is also observed globally. However, she highlighted that the speed at which debt burdens are increasing in ECOWAS is among the highest, starting from a low base in the 20s due to debt relief initiatives. Comparatively, ECOWAS countries have seen more debt relief compared to other regions, which has allowed debt levels to start from a lower base a decade ago. Villa emphasized that debt can be either good or bad depending on how it is managed by governments. If borrowed funds are invested in developing the economy, there can be a return on that investment in the form of higher growth rates. However, the challenge arises when debt needs to be serviced in the short term while the benefits of the investment are long term. This cost-benefit analysis becomes risky, especially when considering the various types of lenders that governments borrow from. Traditional lenders like the IMF, World Bank, and African Development Bank tend to offer financing at below-market conditions for specific spending that is positive for long-term growth prospects. In recent years, Moody’s has observed a shift towards more traditional lenders and market debts, with some countries borrowing for spending that may not necessarily contribute to long-term growth. This, along with a lack of transparency in fund usage, has raised concerns about the sustainability of debt levels in ECOWAS countries. Villa also addressed the stringent measures being put in place by traditional lenders like the World Bank and African Development Bank when providing loans to countries. While higher conditions and requirements from lenders can lead to more efficient spending, it also poses challenges for governments in implementing projects and leveraging the funding effectively. This trade-off between high requirements and efficient spending can impact a country's ability to access much-needed financial resources. Overall, Moody's analysis underscores the importance of prudent debt management and transparency in fund usage to ensure debt sustainability in the ECOWAS region.