Women farmers carrying bundles of harvested rice over a bridge to a threshing machine in Sierra Leone.
Africa

Experts say Africa Needs urgent Concessional Financing

Africa needs concessionary financing to help build a resilient economy, experts urge, amid fears that multiple shocks could reverse two decades of development progress.

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).

In the past six decades, every global recession has led to a rise in global government debt and that many African countries have increased their public debt, said Adam Elhiraika, Macroeconomics and Governance Division chief at the Economic Commission for Africa (ECA).

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,” 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.

Under the RST, is the Resilience and Sustainability Facility (RSF), described as 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, says it has developed a practical guide to inform policymakers and domestic stakeholders about the RSF’s key features, eligibility criteria, and objectives.

AfriCatalyst CEO Daouda Sembene said the RST had potential benefit for African countries, reeling under high indebtedness.

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.

Access to this financing, advisors at AfriCatalyst say, said 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 favorable financing terms.

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