African central banks must increase international borrowing and investment in natural assets if they are to play a big role in financing development.
“The issue is whether new liabilities are sustainable, which in turn depends upon the management of assets,” Prof Paul Collier, Director for the Centre for the Study of African Economies at the University of Oxford said during a recent meeting of African central bankers in Kigali.
He shared his experience on how developed economies accumulated liabilities as part of the growth process.
“Debt accumulation and the reduction of natural resources were core methods of financing the public infrastructure that is essential for development,” Collier explained.
He said Africa has the potential to borrow commercially and that many African countries are under-borrowed.
Rwanda has a debt of only 27 percent of GDP compared to the debt/GDP of 50-60 percent.
“This would permit a correspondingly large increase in public capital stock,” Collier suggested.
Participants through plenary sessions discussed strengthening the synergies between all stakeholders that would help the efficiency of central bank’s actions.
They included governments, development banks, private sector, international institutions and financial market.
The meeting also identified weaknesses of African economies that are likely to affect the efficiency of central banks’ actions including; poor governance, low levels of international reserves amongst African central banks, political and economic instability.
Others are lack of adequate consultation on economic issues between the government and central banks.
“You cannot coordinate macroeconomic policy if you cannot coordinate fiscal and monetary policies,” Vice Governor of the National Bank of Rwanda, Monique Nsanzabaganwa, said.
Nsanzabaganwa cited that recently, BNR was hailed for its involvement in debate and solutions to financing development.
“We can’t take it for granted; we meet with different institutions and discuss issues related to prices, and each institution pledges its role. We have shining experiences in collective synegies,” she noted.
She added that in BNR’s strategic plan, they intend to conduct a financial literacy campaign to bridge the information gap.
“If there is anything that is very harmful to the economy is when one player has information and another one doesn’t.
The imbalance in information was one of the factors that heavily contributed to the global financial crisis,” she warned.
Participants recommended that there should be strong legal and institutional frameworks to provide safe and sound financial systems and revisit central banks’ acts to include a developmental dimension in countries where it is not explicit to assist the government in commercial borrowing, especially in bonds issuance in the international markets.
Other recommendations included sustainable management of revenue from natural resources particularly those that generate foreign exchange reserves, providing focused financing facilities to address specific developmental issues and establishment of appropriate committees to coordinate monetary and fiscal policy.