Debt forgiveness is not helpful, Ecobank CEO warns African countries

Ecobank Transnational and Equity Group Holdings, the largest banks in Africa, have warned that debt forgiveness is harmful to African countries.

Ade Adeyemi and James Mwangi, the chief executive officers of Ecobank and Equity Group, made the remarks on Monday at the Bloomberg Invest virtual conference.

The duo said debt forgiveness is a form of default and would come back to haunt the countries when they try to take on new debt.

“When you go to the markets to borrow money, the market is looking at your current and past behaviour, the market is trying to assess your ability to pay back. Therefore all the countries that have proper plans and have behaved properly in the past would be able to access the market and get their deals done.

“Forgiveness is not as helpful, you can restructure your obligation.”

Adeyemi said countries have to think through properly before talking about debt forgiveness.

“Your debt is someone else’s savings so it is always important to think through before we start talking about debt forgiveness especially for the ones that are raised in the market,” he said.

“Countries and companies that have a proper plan on how to put the money to use and a proper payback plan would be the ones that would be acceptable to the market.”

Corroborating his remarks, Mwangi, who heads Kenya’s largest bank by market value, said: “Markets function properly because they are predictable and debt forgiveness is not part of the predictable mechanism of the market.

“It talks about the creditworthiness of the country and to a great extent, forgiveness is a form of default. It distorts the market so it’s one area that we should all be conscious of.”

In April, the International Monetary Fund (IMF) granted immediate debt relief and Nigeria benefitted from the debt relief offered to IDA countries by the G-20.

In May, President Muhammadu Buhari urged lenders to consider outright debt cancellation to help developing countries.