The United Nations Economic Commission for Africa (ECA) and the Africa Development Bank (AfDA) have called for a new initiative for debt treatment and reform of the global financial architecture.
The two institutions expressed concern over the lack of inclusiveness in the global financial architecture and called for reforms that would allow for the effective representation of developing countries at global financial decision-making processes.
Ngone Diop, director of the West Africa Office, ECA, and Eyerusalem, Fasika, country manager, AfDB, made the call in separate presentations at the 8th Ghana International Trade and Finance Conference (GITFiC) held in Accra.
The Conference brought together stakeholders at the Accra International Conference Centre to address the critical issues shaping the global financial architecture.
Diop said the COVID-19 pandemic and the Russia-Ukraine war had hampered the economic performance of African countries, making the continent more vulnerable to economic shocks.
She said African countries need substantial and affordable finances to rebuild their economies in a sustainable way.
“Unfortunately, the global tightening of monetary policy with higher interest rates, coupled with the declining availability of official development assistance and concessional financing, may exacerbate debt vulnerabilities, perpetuating the vicious cycle of fiscal deficit, debt distress and default, with wide negative externalities, jeopardizing the promise of the sustainable development goals,” Diop said.
She called for a paradigm shift in the governance of the global financial institutions namely World Bank and IMF to respond to the pressing needs and vulnerabilities of developing countries.
A 2024 report by the UNCTAD indicated that the average debt-to-GDP ratio in Africa almost doubled from 30% in 2013 to 61.2% in 2023.
As of April 30, 2024, 13 African countries had been identified by the International Monetary Fund as being at high risk of debt distress, while seven countries on the continent are currently in debt distress.
The countries include the Republic of Congo, Ghana, Malawi, São Tomé and Príncipe, Sudan, Zambia, and Zimbabwe.
Fasika said the Bank supported calls for an “urgent and profound” reform of the global financial architecture to make it fairer, give more voices to African countries and deliver the scale of resources needed to allow Africa to achieve its growth and development priorities.
She said in spite of initiatives such as the Heavily Indebted Poor Countries (HIPC) Initiative, the Debt Service Suspension Initiative, the G20 Common Framework, Africa’s debt sustainability challenges persisted.
“The Bank Group estimates that Africa’s total external debt, which stood at US$1.12 trillion USD in 2022, had risen to US$1.15 trillion USD by end-2023. With global interest rates at their highest level for 40 years and as multiple bond debt securities issued by African countries reach maturity, debt challenges might worsen in 2024,” Fasika said.
The AfBD reiterated the call for an end to risk perception, often driven by credit rating agencies, which led to higher borrowing costs for African nations.
According to the African Development Bank, in 2024, African countries are projected to allocate around US$74 billion to debt service, marking a staggering 335 per cent increase compared to its level of US$17 billion in 2010.
It is against this backdrop that the GITFiC has proposed the adoption and implementation of the Global Debt Initiative to ensure long-term relief for the economies of least-developed and developing nations.
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