Tue, 28 Mar 2023 Africa

Africa urgently needs concessional financing to build resilience against shocks, experts say

By Economic Commission for Africa
Africa urgently needs concessional financing to build resilience against shocks, experts say

Addis Ababa, 27 March 2023 (ECA) - With financial, health and climate shocks threatening to reverse two decades of development progress in Africa, experts have called for urgent concessionary financing to help the continent build resilience and boost economic growth.

A mix of shocks including food and fuel impact of the Russia-Ukraine war, climate change impacts, conflict, and tighter global financial conditions have increased Africa's development financing gap and debt vulnerability, experts concurred during a one-day virtual workshop on Catalysing Access to the IMF Resilience and Sustainability Trust (RST), organized by AfriCatalyst and the Economic Commission for Africa (ECA).

ECA Director, Macroeconomics and Governance Division, Adam Elhiraika said that in the past six decades, every global recession has led to a rise in global government debt and that many African countries had increased their public debt. A bulk of the public debt was incurred between 2020 and 2021 when countries sought to combat the impacts of the Covid-19 pandemic.

As a result, many countries were struggling with high debt and in servicing it which was impeding poverty reduction and hindering their recovery from shocks.

“Despite national and international efforts, an increasing number of countries on the continent continue to struggle with substantial debt burdens and servicing their debt, with some already in debt distress or at high risk of debt distress,” Mr. Elhiraika said, emphasizing that this was impeding resilience-building to future shocks, which is key for sustainable development.

In a bid to help developing and lower middle-income countries build resilience to external shocks and achieve sustainable growth, the International Monetary Fund (IMF) established the Resilience and Sustainability Trust (RST). Under the RST, is the Resilience and Sustainability Facility (RSF), an innovative financing instrument to help countries address long-term structural challenges, including climate change adaptation and mitigation and pandemics.

AfriCatalyst, an-Africa based global development advisory firm, has developed a practical guide to inform policymakers and domestic stakeholders about the RSF’s key features, eligibility criteria, and objectives.

The guide also explores how the IMF assistance under the RST could support the design and implementation of national macroeconomic policies to integrate climate and pandemic risks as well as the cost of adaptation into their macro-fiscal frameworks.

AfriCatalyst Founder and CEO, Daouda Sembene, said the RST had potential benefit for African countries, reeling under high indebtedness. With the support of the Bill & Melinda Gates Foundation, AfriCatalyst was bolstering evidence generation and technical advisory support for African policymakers to promote access of Sub-Saharan African countries to IMF financing under the RST.

Mr. Sembene noted there was high demand for climate financing, but available resources were limited. The IMF was currently seeking $40 billion for the RST but had only effectively raised $26 billion.

“African countries need additional resources,” Mr. Sembene said, remarking that the cumulated climate finance of 52 African countries under the Nationally Determined Contributions was estimated at $2.3 trillion.

Ms. Fenohasina Rakotondrazaka Maret, Senior Advisor, AfriCatalyst, said access to this financing will be granted based on the nations' reform strength and debt sustainability. The concessional loans have a 20-year maturity and a ten-and-a-half-year grace period. Borrowers will pay an interest rate that is a modest margin over the three-month SDR rate, with the poorest countries getting the most favourable financing terms.

Rwanda is currently the only African country with an RSF-supported programme approved by the IMF. Rwanda received US$ 319 million to be used for climate change programming.

Senior Adviser Ali Mansoor, a former IMF Assistant Director and Mission Chief noted that Rwanda has embedded climate issues into national strategies for transformation. During COP27, Rwanda launched its “Ireme Invest” program, to provide funding for green projects for small and medium enterprises.

Mansoor said Rwanda will use the RSF to catalyze further financing and organize better planning within their budget process for risks related to climate change and accredited its Ministry of Environment under the Green Climate Fund and the Adaptation Fund.