African countries face a “major development challenge” of an increasing “infrastructure financing gap”, according to Etsehiwot Kebret, a finance development advisor at Development Reimagined.
“The World Bank, as you know, a critical financial institution, should technically be providing loans for infrastructure, and sometimes it's also referred to as the infrastructure bank. But, it has been quite the opposite,” Ms. Kebret says.
The finance expert says that the World Bank has been “avoiding funding infrastructure projects” in Africa. For example, the World Bank has “not funded a rail route on the continent since 2002”.
“If the bank is not financing projects that are needed, then the bank is not really doing its job efficiently. And what that does mean is that it's not really a reliable partner for the African continent,” the expert states.
Another problematic instrument used by the World Bank and the IMF is the “debt sustainability analysis” or DSA. The analyses “are restricted to poor countries,” and they fail to consider the manner in which “the government is spending their money”.
“If a country is spending a lot more money on something like infrastructure, which we know is essential for development and growth, and that we know has a positive impact on the economy, then this is something that the DSA should technically be taking into account, which it does not. And the way that these rankings happen is, if a country has a debt to GDP ratio of over 60%, then they're put in these categories,” Ms. Kebret explains.
These instruments have “major consequences for African countries,'' as they can prevent foreign investments from coming into the country.
“If a country is given the rank of, let's say, being a high risk or is in debt distress, then that means that foreign investors won't want to invest in that African country. And if we don't see major reform taking place, then we're not going to really see the continent realizing its true potential,” the expert elaborates.
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