Experts Call for Innovative Solutions to Manage African Debt at AfDB Annual Meetings

The session on debt financing and development in Africa was organized by the African Union Commission and the consultancy International Development Reimagined.

Innovative solutions for managing the debt of African countries and securing development financing are essential, according to members of a panel speaking in Nairobi on Tuesday during a side event at the African Development Bank Group’s Annual Meetings, held from May 27 to 31.

The session on debt financing and development in Africa was organized by the African Union Commission and the consultancy International Development Reimagined. High-level speakers included Ahmed Shide, Ethiopia’s Minister of Finance, Hanan Morsy, Deputy Executive Secretary and Chief Economist of the United Nations Economic Commission for Africa, Olivier Pognon, Director of the African Legal Support Facility (ALSF), and Mavis Owusu-Gyamfi, Executive Vice-President of the African Center for Economic Transformation (ACET).

Albert Muchanga, Trade and Industry Commissioner at the African Union Commission, opened the discussion by warning of the risk of a possible "lost decade for development in Africa" between now and 2034, citing major challenges such as the debt burden, lack of regional integration, insufficient business competitiveness, and inadequate economic diversification.

With 60 percent of African countries spending more on debt servicing than on health, Muchanga called for action on three fronts: achieving an average growth rate of 10%, far higher than the current 3.5%; diversifying exports by developing the manufacturing industry; and strengthening regional integration to create a common market that can harmonize policies, increase resilience to climate change, and address debt issues.

The reform of the G20 Common Framework on debt restructuring was a key topic raised by all the panelists. Ahmed Shide suggested "a more coordinated approach, with more transparency and clearer lines between borrowers and creditors," while Hanan Morsy advocated for "a reform that would make the Common Framework more effective, time-limited, and open to wider country eligibility." She also emphasized the need for official creditor guarantees to reduce risk and lower the cost of issuing sovereign bonds.

Mavis Owusu-Gyamfi stated, "Debt is not a bad thing. It all depends on what you do with it. By investing in development, diversifying our economies, and enhancing the competitiveness of our exports, we can break the cycle of long-term debt." She highlighted the importance of having a robust legal and institutional framework, noting that countries like Zimbabwe have exemplary frameworks.

Panelists recognized the importance of legal frameworks for debt structuring, such as "climate resilience" clauses to support liquidity in case of climate catastrophes. They also stressed the necessity of ensuring the responsible use of debt at the national level, with accountability mechanisms implemented through independent organizations, as seen in Kenya.

Ideas put forward included securing affordable finance at scale through regional capital markets, strengthening the capitalization of multilateral development banks and concessional financing windows, optimizing balance sheets, and improving countries' internal capacities with debt sustainability analyses.

Strengthening the legal capacities of countries and debt managers is within the remit of the African Legal Support Facility (ALSF), established by the African Development Bank Group in 2008. The ALSF provides advice through themed guides, practical handbooks, and an academy, and has assisted countries such as Somalia and Guinea Bissau in debt restructuring.

Olivier Pognon emphasized the overlooked negotiating power of African countries and the importance of transparency in debt management to achieve results. "Getting legal advice very early on is the best thing that can happen for debt restructuring and avoiding problems facing African countries," he advised.

Currently, Ghana, Zambia, and Ethiopia are in default on their external debts, and 21 other African countries have excessive debt levels.

"We need to find sustainable development models by accelerating the mobilization of internal resources, strengthening the role of the private sector, and diversifying investments. It’s also essential to borrow responsibly," concluded Ahmed Shide, underscoring that debt is a crucial part of the development equation.