LIMITED access to concessional loans was at the centre of last week’s 2024 African Development Bank annual meetings.
This came amid reports that Africa is failing to service its debt.
It also emerged during last week’s meetings that Africa is in a situation where it must pay US$74 billion in interest charges to service the cost of the debt.
Zimbabwe is among the many African countries suffering from a huge debt overhang,with Finance, Economic Development, and Investment Promotion minister Mthuli Ncube admitting that the country is in ‘debt distress’.
Creditors, however raised concerns that while Ncube had revealed the country’s total debt at US$19,2 billion, this differed from the US$21,9 billion he alluded to at the World Bank/International Monetary Fund meetings in April.
Thus, creditors were not keen to avail new financing or lending to Zimbabwe until the country admitted to what it truly owed and committed to deal with the debt.
According to AfDB, this is why the global financial infrastructure is not lending to Africa owing to African countries not servicing their debt.
Even for concessional loans, lending that has more favourable terms than the borrower could obtain in the marketplace, this has also been hard for African nations to get.
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AfDB president Akinwumi Adesina urged a rethink on how the global financial architecture was serving Africa and what needed to be done to improve its services to the continent.
“So, I'll make a few points. First, that global financial architecture is not serving Africa well in terms of mobilising resources to achieve the Sustainable Development Goals. And as you know, the UN secretary -general says that it used to be US$2,5 trillion that we needed. Now, we need US$4 trillion to be able to do that,” the AfDB boss said.
“And Africa itself just needs US$1,5 trillion to be able to meet those sustainable development goals, and Africa isn’t getting that money. So, there’s something fundamentally wrong in a continent that still needs 600 million people to be connected to electricity, in a continent that still needs money to have 1,2 billion people to have access to clean, complete energy.”
He said the global financial architecture needed to do more to meet the needs of Africa, to allow it to meet the Sustainable Development Goals.
The global financial infrastructure remaining strict in terms of having debt service in order to access fresh credit, has led to China offering Africa more expensive lending to the continent.
“The second point is that the global financial architecture is not serving Africa well when it comes to the issue of debt. In the 90s, you will recall, we had the highly debted for country initiatives. We had a multilateral debt relief initiative. It took forever for those negotiations to be concluded, and Africa lost one whole decade,” Adesina said.
“And today, as we are here, we are in a situation where Africa has to pay, this year, US$74 billion in terms of interest payments, servicing their costs for debt and we had a debt service suspension initiative. We have the G20 Common Framework, which we all agree with. It’s a great framework, but it’s worked for creditors’ committee.”
The G20 Common Framework drawn up by the group of 20 nations and the six-decade-old Paris Club, which represents creditors in mostly developed nations, according to Investopedia.
It is an initiative launched in 2020, as a mechanism to support the restructuring of debts owed to disparate funders as the advent of the COVID-19 pandemic had made it more difficult for borrowers to meet their e debt obligations.
Adesina said because of the overlapping payments that were going to be due, Africa would need, this year alone, require U$20 billion to refinance its debt.
“Next year, it will be US$10 billion to refinance it for the next five years, every year. But there is not a single global financial institution that exists to deal with refinancing of Africa's debt,” he said.
“That’s why, to us, at the African Development Bank, we are actually working based on what the African Union asked us to do, on what’s called the Africa Financial Stability Mechanism, just like you have in Europe, just like you have in Arab countries. A shock should not have to deal with contingent effects across all of our economies… And so, this will be a vehicle that will actually be able to do the refinancing of Africa’s debt.”
He said it was key to make the global financial architecture, in relation to debt, comprehensive by making sure that it offers faster debt relief with access to concessional loans.
Kenya President William Ruto said to compound the crises, the economies of the continent continued to bear the burden of rising costs of servicing huge national debts, caused in part by high global interest rates and external shocks.
“We routinely borrow from international markets at rates far above those paid by the rest of the world, often up to eight to 10 times more. These rates are said to factor in an arbitrary risk profile that is notably not applied when considering mineral extraction, even in areas of active conflict,” he said.
“The debt problems faced by many countries, which consume the largest share of national resources and starve the development agenda, are a direct result of this unjust financial architecture. This situation not only makes debt unsustainable but also undermines growth, prevents countries from investing in resilience, and denies millions of people, especially young men and women.”
The Kenyan leader said the financial architecture should integrate the continent’s most challenging development issues of debt sustainability and climate vulnerabilities to enable the achievement of the Sustainable Development Goals and Agenda 2063 commitments.
JP Morgan Global Public Sector Sub-Saharan Africa’s managing director Olivier Weck, however, said those countries that were in debt distress may reach a median level in a year.
“We started by speaking about the unsustainability of the debt in Africa. When you look at what happened over the past few years, it’s actually improving because of the fiscal situation, because of the IMF support,” he said.
“So, we need to continue on that form for the next year, and I believe that some of the countries that are in a high and very, very distressed positions today may be on the median level in one year time, and maybe they will be able to afford a better level because the market itself also price loans to these countries in line with their risk.”
Weck said if the African debt was better managed, the continent’s nations would have access to a lot of hard currencies in loans.
