Unveiling the Impact of Non-Transparent Resource-Backed Loans:
Akinwumi Adesina, President of the African Development Bank (AfDB), has raised concerns over the detrimental impact of non-transparent resource-backed loans on Africa’s economic growth. Speaking at the Semafor Africa Summit during the 2024 Spring Meetings of the International Monetary Fund and World Bank, Adesina emphasized the need for debt transparency and accountability to prevent these loans from hindering the continent’s progress.
Africa’s Growing Debt Dilemma:
Adesina highlighted the challenges posed by Africa’s growing external debt, which amounted to $824 billion in 2021, with countries allocating a significant portion of their GDP (65%) to service these debts. He noted a substantial increase in debt service payments, reaching $74 billion in the current year, compared to $17 billion in 2010.
Challenges and need for Shift from Concessional Financing to Commercial Debt:
Despite acknowledging the fiscal strains exacerbated by the COVID-19 pandemic, infrastructure demands, and escalating inflation, Adesina stressed the importance of addressing structural issues within Africa’s debt landscape. He pointed out the transition from concessional financing to more costly and short-term commercial debt, particularly Eurobond debt, which now constitutes 44% of Africa’s total debt, up from 14-17%.
Adesina criticized the ‘Africa premium,’ an additional cost countries face when accessing capital markets, despite Africa’s lower default rates compared to other regions. He called for a change in the perception of risk to reduce borrowing costs for African nations.
Referencing a recent World Bank Group report advocating for a reconsideration of investment opportunities in emerging markets, Adesina highlighted the rarity of defaults among sovereign borrowers. He urged for the prompt implementation of the G20 Common Framework to establish an orderly and predictable approach to managing Africa’s debt.
Embracing Renewable Energy Opportunities:
Adesina discussed the African Development Bank’s efforts to mitigate project risks and attract institutional investors through various instruments and initiatives, such as partial credit guarantees, hybrid capital, and synthetic securitization. He expressed optimism about Africa’s potential, particularly in renewable energy, citing the continent’s abundant solar resources.
Africa Investment Forum: Fostering Global Partnerships:
Furthermore, Adesina promoted the Africa Investment Forum, a platform aimed at facilitating large-scale investments in critical sectors like infrastructure, digitalization, and renewable energy, in collaboration with partners worldwide.
In conclusion, Adesina reiterated Africa’s attractiveness as an investment destination and affirmed the African Development Bank’s commitment to fostering an environment conducive to investment growth.
The Semafor Summit’s session, titled “Rising Global Middle Class: Is Rising Developing Nation Debt a Blessing or a Curse?,” brought together various stakeholders to discuss the escalating debt burden faced by developing countries amidst rising borrowing costs. Notable participants included Xavier Becerra, U.S. Secretary of Health and Human Services; Raj Shah, President of the Rockefeller Foundation; Andrew Steer, President and CEO of the Bezos Earth Fund; and Brent Neiman, Assistant Secretary for International Finance at the U.S. Treasury.
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Written By Malik Kamaldeen M.