Africa’s immense economic potential is being undermined by non-transparent resource-backed loans that complicate debt resolution and compromise countries’ future growth.
“I think it’s time for us to have debt transparency accountability and make sure that this whole thing of these opaque natural resource-backed loans actually ends, because it complicates the debt issue and the debt resolution issue,” says African Development Bank president Akinwumi Adesina, speaking at the Semafor Africa Summit taking place on the sidelines of the International Monetary Fund and World Bank2024 Spring Meetings.
Adesina highlights the challenges posed by Africa’s ballooning external debt, which reached $824-billion in 2021, with countries dedicating 65% of their GDP to servicing these obligations.
He says the continent would pay $74-billion in debt service payments this year alone, a sharp increase from $17-billion in 2010.
While acknowledging the fiscal pressures faced by African nations due to the Covid-19 pandemic, infrastructure needs, and rising inflation, Adesina emphasises the need to address the structural issues in Africa’s debt landscape.
He points out the shift from concessional financing to more expensive and short-term commercial debt, with Eurobond debt now accounting for 44% of Africa’s total debt, up from 14% to 17% previously.
He also criticises the “Africa premium” that countries pay when accessing capital markets, despite data showing that Africa’s default rates are lower than those of other regions.
He calls for an end to this risk perception, which he says leads to higher borrowing costs for African nations.
The African Development Bank head stresses the importance of putting in place an orderly and predictable way of dealing with Africa’s debt, urging for faster implementation of the G20 Common Framework.
He also highlights the need for increased concessional financing, particularly for low-income countries.
“What’s particularly interesting in Africa is that the level of concessional financing itself has actually gone down, has shrunk significantly,” he says, adding that the African Development Fund – the Bank Group’s concessional lending arm to low-income countries – is providing long-term financing at low interest rates to the 37 most vulnerable countries.
Adesina says various instruments and initiatives are employed by the African Development Bank to de-risk projects and attract institutional investors, such as partial credit guarantees, hybrid capital, and synthetic securitisation.
Looking ahead, he is optimistic about the opportunities in Africa, particularly in renewable energy, given the continent’s vast solar potential.
The Semafor summit session – titled “Rising Global Middle Class: Is Rising Developing Nation Debt a Blessing or a Curse?” – brought together a range of participants for conversations on the increasing debt burden faced by developing countries as borrowing costs have risen.