AfDB Cushions Africa Against Financial Crisis

The African Development Bank (AfDB) Group has set out measures to provide concrete support to institutions and projects in Africa to help mitigate the impact of the prevailing financial crisis in it's Regional Member Countries (RMCs).

These measures are contained in a policy document titled: “Bank Response to the Economic Impact of the Financial Crisis”, approved by the board of directors of the bank last Wednesday in Tunis.

The response comprises four initiatives to be considered together — Emergency Liquidity Facility, Trade Finance Initiative, and Framework for Accelerated Resource Transfer of African Development Fund (ADF) Resources to eligible countries and enhanced Policy Advisory Support.

The Emergency Liquidity Facility (ELF) with a provisional US$ 1.5 billion, in the short-term, will enable the bank to disburse resources in a fast and flexible manner to enable eligible recipients to rapidly meet the urgent, unforeseen and short-term financing needs.

The US$ 1 billion Trade Finance Initiative (TFI), will be implemented in phases as the bank strengthens its capacity in this regard, with the launch, of a first phase new Line of Credit for Trade Finance (TI LOC) of US$500 million which will enable commercial banks and development finance institutions in Africa to use AfDB resources to help trade financing operations.  

In line with the measures, support to low-income borrowers of ADF's concessional resources will be provided in the form of budget support to offset budget deficits due to falling commodity prices, declining exports, worsening terms of trade and infrastructure financing in key long-term projects.

To enhance its advisory support to the RMCs, the bank will continue to deepen its analysis of the impact of the crisis to develop appropriate policy responses at the national and regional levels.  

This response is largely based on the conclusions of African Finance Ministers Conference held in Tunis, Tunisia , in November last year on AfDB's initiative. Its content reflects real needs and demands, and it takes into account actions by the bank's partners.

The combination of instruments such as those proposed - and working in close concert with other development partners - would make it possible to tackle the most important steps:  fast-tracking support to eligible low-income countries in need of it, keeping trade moving, providing liquidity, helping the institution's RMCs stay the course of sound policy frameworks and filling financing gaps in key infrastructure projects.

“These proposals reflect what we know at this stage and are an attempt to meet a part of the needs, because the needs are larger and will, in all probability, grow.

The bank's response provides for a review of the instruments based on market developments, risk implications and tenor of the crisis from time to time. 

The first review will take place in six months or earlier, if circumstances warrant it”, AfDB Vice President Mandla Gantsho, who chaired the Financial Crisis Management Group within the bank, said.