Stakeholders seek concessional financing in Africa

Some stakeholders have called for urgent concessionary financing to help Africa build resilience against shocks and boosts its economic growth.

They said this was crucial, especially with financial, health and climate shocks threatening to reverse two decades of development progress in Africa.

They spoke during a one-day virtual workshop on “Catalysing Access to the International Monetary Fund’s (IMF) Resilience and Sustainability Trust, RST”, organised by AfriCatalyst and the Economic Commission for Africa, ECA.

The stakeholders said that a mix of shocks had increased Africa’s development financing gap and debt vulnerability.

“This includes food and fuel impact of the Russia-Ukraine war, climate change impacts, conflict, and tighter global financial conditions, ” the experts said.

The Director of ECA, Macroeconomics and Governance Division, Adam Elhiraika, said that over the last six decades, every global recession led to a rise in global government debt.

Public Debt

According to Elhiraika, many African countries have also increased their public debt.

He said a bulk of the public debt was incurred between 2020 and 2021 when countries sought to combat the impacts of the Covid-19 pandemic.

The ECA official said as a result, many countries were struggling with high debt and servicing it, stating  that this was impeding poverty reduction and hindering their recovery from shocks.

“In spite national and international efforts, an increasing number of countries on the continent continue to struggle with substantial debt burdens and servicing their debt.

“Some are already in debt distress or at high risk of debt distress, which is impeding resilience-building to future shocks, which is key for sustainable development,” he said.

The director said in a bid to help to develop and assist lower-middle-income countries build resilience to external shocks and achieve sustainable growth, the IMF established 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, 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 objective policy,” he said.

According to Elhiraika, the guide also explores how IMF assistance under the RST can support the design and implementation of national macroeconomic policies.

“This is to integrate climate and pandemic risks and the cost of adaptation into their macro-fiscal frameworks,” he said.

AfriCatalyst Founder and Chief Executive Officer, CEO, Daouda Sembene said the RST had potential benefits for African countries reeling under high indebtedness.

He said with the support of the Bill and  Melinda Gates Foundation, AfriCatalyst was bolstering evidence generation and technical advisory support for African policymakers.

Sembene said the support would enable it to promote access of Sub-Saharan African countries to IMF financing under the RST.

The chief executive said there was high demand for climate financing, but available resources were limited.

Moreso, Sembene said the IMF was currently seeking 40 billion dollars for the RST but had only effectively raised 26 billion dollars.

“African countries need additional resources. The accumulate climate finance of 52 African countries under the Nationally Determined Contributions is estimated at 2.3 trillion dollars,” Sembene said.

Ms Fenohasina Maret, Senior Advisor, AfriCatalyst, said access to this financing would be granted based on the nations’ reform strength and debt sustainability.

According to Maret, concessional loans have a 20-year maturity and a ten-and-a-half-year grace period.

She said: “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. It received 319 million dollars to be used for climate change programming.”

Senior Adviser Ali Mansoor, a former IMF Assistant Director and Mission Chief, said that Rwanda had embedded climate issues into national strategies for transformation.

Mansoor said that during COP27, Rwanda inaugurated its “Ireme Invest” programme to fund green projects for small and medium enterprises.

According to him, Rwanda will use the RSF to catalyse further financing and organise better planning within their budget process for risks related to climate change.

He added that they would also use the RAF in accrediting their Ministry of Environment under the Green Climate Fund and the Adaptation Fund. (VON)