Mari Pangestu is the World Bank Managing Director of Development Policy and Partnerships. In this role, she provides leadership and oversees the research and data group of the World Bank, the work programme of the World Bank’s Global Practice Groups, and the External and Corporate Relations function. Pangestu, who is presently on a Mission Visit to Nigeria in this interview with THISDAY, warns that unless governments at all levels in Nigeria provide opportunities for the country’s high youth population, its demographic dividend could turn into a demographic crisis. She also harps on the need for countries to integrate climate change adaptation into development, among other issues. Excerpts:
You participated in the 2021 United Nations Climate Change Conference (COP26) in Glasgow that ended at the weekend; for you, what were the takeaways from the conference and what lessons do you think African countries like Nigeria should take home in order to enthrone a better planet?
The main takeaways are obvious because it was the five-year milestone from the Paris Agreement where countries were asked to provide more ambitious Nationally Determined Contributions (NDCs). We saw a lot of countries committing to more ambitious NDCs as well as net-zero. It was not all countries, but a larger number compared to before. A lot of the developing countries were of the view that even though we are committing more, development should still be key. So this is also a priority issue for the World Bank Group. We have to integrate climate into development. It cannot only be about climate, it has to be how a country can still achieve development with issues around climate integrated into their development pathways. That is the broad strategic picture we are looking at. In that regard, the developing countries are saying they would like to do more, but that for them to do more, they would need financial, funding and technology support. Then, you come to the second issue which was part of the negotiations that have been going on – the $100 billion climate finance which was promised back in 2015 to be delivered in 2019.
Today, we are in 2021, only around $80 billion has been delivered out of that amount. So there is a lot of push for that fund to be released. That means further commitment for the bilateral donors and multilateral agencies. The World Bank has done its part by increasing its commitment and 35 per cent of our financing would be going to climate and that amounts to about $25 billion a year, and half of that would be going to adaptation because that was another issue that was raised during the COP26, especially coming from African countries and some of the small island states because they are only responsible for four per cent of the greenhouse gas emission, yet they are the most impacted by the climate crisis.
So for African countries, the issue is less about energy transition, but more about energy access because half of Africa still doesn’t have electricity. And it is more about addressing the need for adaptation and resilience as well as protecting and restoring the natural assets that Africa has. The priority has to be on adaptation and resilience. That was one of the things that emerged from COP26. We need more funding, more attention, more priority and policies on what to do. Next year is COP27 and it will be held in Egypt and because it is in Africa, adaptation would be the big thing and for Africa, that would be a very important issue.
Then the final takeaway is that the private sector was present in big numbers at COP26. I have been to many COPs and I think this was the highest level and most comprehensive of the private sector and that came up with promises and commitments of trillions of dollars because they are also committed to net zero for their companies and for their sectors. And these trillions of dollars are going towards transformative investments for climate and development in emerging countries and that is the opportunity for Africa and for countries like Nigeria.
The focus for African countries, including Nigeria should be on how to come up with a clear design of low-carbon, long-term development strategy that identifies and prioritises which areas of transformative investments we need to have in our country and how much funding and the types of technologies we need. And as a government, we would create a kind of societal approach that packages these reforms, policy changes and institutional changes that would lead us to say, for instance, for South Africa, I would think it is about energy access as well as developing renewable energy as well as transiting out of the fossil fuels, but doing it in a way that we would still have just transition because we are still developing.
I would think it would largely be about resilience and adaptation, especially in the coastal areas as well as the agricultural lands. So this would be a package that countries like Nigeria can come up with, with a clear identification of the changes and reforms that the country would do and be quite specific about the funding needs, capacity building needs and amount of investment required. So there would be a combination of public funding, either coming from the $100 billion multilateral/bilateral donor funding as well as other concessional sources and the International Development Association (IDA) would be an important source here. Then, you would want to crowd in private sector funding in some of these trillions of dollars. But it would require countries to create the right kind of conducive environment to attract this kind of funding. Again, the country should be very clear on its objective.
The latest World Bank’s Debt Transparency Report was released last week, can you take us through the key findings in that report, especially as it relates to African countries?
The key findings include the fact that we do need to analyse and have comprehensive data on debt if we are going to address the debt issue. There are several missing issues in terms of the data that don’t tend to be totally captured by the report that we have on sovereign debts. Forty per cent of low-income developing countries didn’t even publish any data on sovereign debt in the last two years and when they are published, they are done in multiple official and private sources that show deviations. So getting the accurate numbers has been a big issue for those countries.
And we don’t have data on central banks’ repos (repurchase agreements) and currency swaps, which are increasingly being used to facilitate external borrowings rather than to implement monetary policy or manage check liquidity, so that needs to be included in the overall debt number. And the other number we need to have in order to have a complete picture of understanding how to view the debt situation in countries, is the domestic debt market. In low income countries, it tends to be not very transparent and we don’t always know totally the size of those debts. The other number that we don’t have is the resource-backed loans, and this is a rising share of the debt stock in low-income countries like African countries and they do pose transparency challenges. They are not usually organised by borrowers.
The big issue is that we have different kinds of credit risks. Not all are members of the Paris Club. Also, the big one that we don’t have is private sector debt and we often don’t have numbers on debts from State-owned Enterprises or special purpose vehicles, which are off-budget. So basically, our view is that debt transparency is key and we need to have the whole picture. Right now, we have different pieces of the picture and we don’t know how that adds up. If we are going to address the debt issue, we need to have a complete picture to understand what needs to be done; whether it is a continuation of the debt suspension initiative.
You need that to start talking about reducing the size of the debt, debt relief or debt restructuring programmes. The final thing I would say is that we do all this work on debt transparency with countries that do want to come on that common framework initiative, like we are working with Chad, Ethiopia and Zambia, together with the International Monetary Fund (IMF). We also at same time provide countries with large net-positive flows to the poorest countries. For example, between April 2020 and June 2021, we committed $36.3 billion in financing for countries participating in the debt service suspension initiative, of which $11.8 billion was in form of grants, which is three times more than their $3 billion debt service repayments that they received from the debt service suspension initiative. So we help on the debt side and we also help in providing net-positive flows to the poorest countries.
While in that report, Nigeria was commended for its openness in debt reportage, a major concern for a lot of its citizens is the country’s rising debt profile. Considering the work you have done in other countries, what steps would you advise Nigeria’s government to take to avert a debt overhang?
Based on the numbers that we have, Nigeria’s total debt-to-GDP is at 33.3 per cent, which is low compared to other low-income countries; and this actually includes the overdraft from the Central Bank of Nigeria (CBN) and other contingent liabilities. So the debt overhang does not seem to be an issue at present for Nigeria. What is important is that new debts that Nigeria incurs (and this potentially could happen given its large needs), should be used in the most effective ways to achieve inclusive growth and should be used in a transparent way, which takes us back to the importance of debt transparency. While total public debt in Nigeria is currently sustainable and external debt levels are actually low by international standards, the country’s debt profile is vulnerable to two macroeconomic shocks. Large share of the government’s revenues goes towards servicing these debts.
While debt service-to-GDP ratio remains high at six per cent, interest payments-to-revenue ratio standing at 37 per cent and with inflation pressures rising all over the world, interest rates are going to go up. So this would be something to watch out for. In terms of the fiscal policy aspect, what Nigeria should be looking at is how to make sure that on the revenue side, it is watching out. That is because half of the revenues are coming from oil and oil revenues are volatile and Nigeria’s debt stock would rise rapidly if there is another oil shock. That is a major source of macroeconomic shock. So I think debt transparency is a priority for Nigeria, including the overdrafts from the CBN, which is another issue that we emphasised in the report that Nigeria should adopt.
Another priority is to improve the monitoring and evaluation of contingent liabilities from state-owned enterprises and making sure that all are accounted for and published. Then obviously, if you think about the revenue side, given the amount that is already being used to pay for debt service, it leaves little room for other spending. Then, how can we have a better fiscal policy? So policies like reducing petrol subsidy would free up large amount of resources, which I believe is between N2 trillion and N3 trillion.
That can free up the resources to fund the public spending on education, housing and poverty reduction and at same time support the energy reform process that would be needed and provide the right kind of outcome in terms of energy needs and provide incentives for renewable energy. In a way, it is like a triple win that you are going to achieve if you free up those resources and you will be using the money more effectively to achieve the development outcomes and at same time, you can also achieve better climate outcomes by reducing the amount of gasoline and diesel-generated power can be replaced by cleaner energy.
In terms of human capital development, Nigeria is ranked 150 out of 157 by the World Bank. What is your institution doing to raise human capital and productivity in the country and reverse the trend?
It would have to be both on the health and education side. On the health side, we are working, starting from the emergency response as well as the vaccine response to make sure that the basic health services are provided. We know that the issues of health services to women and children have declined because of the shift of having to address the pandemic. And this needs to be addressed. In the short term, we are working with many parts of the government at the state level on how to build better health systems and address the immediate health emergency issues as well as build stronger and more resilient health issues moving forward.
Within that, I think the issue of nutrition and stunting in children, which is part of the human capital issue that we face in many countries, also has to be addressed. That is the kind of basic infrastructure such as clean water, reducing open defecation and having a good sanitation system because that also contributes to the lower health outcomes of children and the overall population. On the education side, obviously we have found, especially in Nigeria, that there is a high number of those who are out-of-school – about 10.5 million children are out-of-school and 90 per cent of that are in northern Nigeria. Out of this amount, 7.4 million are girls. So with the pandemic, you want to first of all get the kids back to school and those who were not going to school, you also make sure they go to school as well as equip the learning classes. At the same time, you work on improving the basic education and the foundation for learning.
I have seen some states, such as Edo, adopting digital methods to improve teaching and the content for learning. Nigeria does have a high number of kids that are not in school as well as what we call learning poverty, which has to do with the number of children at 10 years old who cannot read, write and even comprehend simple text. That was around 53 per cent globally before the pandemic and we think it is presently up to 70 per cent and Nigeria may be close to that 70 per cent number. This has to do with how to make sure that in terms of the learning outcome, how to make sure that we work with the education system, the teachers and the students to make sure that we are addressing the basic human capital issues starting from a young age.
We also have the adolescents, the youth and those at the tertiary level that require up-scaling and re-scaling of their skills to be able to participate in the growth and recovery that would happen. This would be a combination of basic and digital skills and how we can find new opportunities for the youth. Nigeria has a demography dividend that can turn into a demographic crisis if we can’t find jobs for the 3.5 million into the labour force. I think the job-creation side of the human capital story is also very important.
We all know that access to COVID-19 vaccine is a major driver of growth going forward, what is the World Bank doing to ensure equity in the distribution of vaccines globally?
We are very conscious of the issue of vaccine equity and what we have been doing from the beginning of the crisis is that we have allocated funding for emergency health response and then we subsequently provided $12 billion for vaccines’ purchase and now that amount has gone up to $20 billion. What we have been doing is working with COVAX, which is the multilateral agency that was created by the World Health Organisation. They have access to vaccines from all suppliers and provide the first 20 per cent to developing countries for free and the World Bank comes in to help co-finance for countries to have an additional amount. At the moment, less than 10 per cent of Africa’s population is vaccinated, so are partnering with the African Union to support the Africa Vaccine Acquisition, which would help all countries purchase and deploy vaccines for up to 400 million people. That includes producing vaccines in South Africa through the Johnson & Johnson plan.
And we have already deployed $5.8 billion to 60 countries and part of that goes to Africa and Nigeria is also getting part of that. Already, we are financing a $500 million health programme, which includes $400 million for vaccines. We work hard to make sure that we get the supply and financing capabilities. But the other component of this is how to get vaccines on peoples’ arms. We are working with UNICEF and others to make sure that vaccines can be delivered to peoples’ arms, which is a combination of the infrastructure, the storage facilities, having the health workers and making sure that the country has a plan of who gets vaccinated, when and where.
Finally and most importantly is the importance of a social communication and engagement plan because vaccine hesitancy is very high in some countries in Africa. So we have been working with a number of African countries, such as Côte d’Ivoire and the Democratic Republic of Congo (DRC) and we work with the government, community and religious leaders to have engagement campaigns with the population and community to get them to understand why vaccination is important. This vaccine readiness and preparedness account for about 25 per cent of the financing. So it is not just about purchasing it, but also making sure that it is delivered safely, securely and to the people that would be taking them.
What are your expectations and outlook for the Nigerian economy for the rest of 2021 and why are you visiting Nigeria?
Nigeria is the first country I will be visiting on a mission visit in my new capacity as the Managing Director for Development Policy and Partnership because I wanted to visit Africa. For me, coming from Indonesia, there are lots of similarities between Indonesia and Nigeria. For the World Bank Group, for Nigeria, our priority in the short term is to work with the Nigerian government to ensure macro-stability, whether it is the exchange rate or petrol subsidy removal and on the social protection assistance, health and education programmes in the human capital agenda. In the medium term, we have other programmes such as the rural electrification, agriculture access and market programme.
I think given the number of people in rural areas and those who are in the agriculture sector, we see that as a huge recovery area and we would continue to push with the energy reforms. We stand ready to help the Nigerian government in their development process and we also look forward to how to integrate climate to the development pathways. We are also ready to support the diversification efforts of the Nigerian government.
