The United Nations Economic Commission for Africa (ECA) and the African Development Bank (AfDB) have called for a new initiative to address debt treatment and reform the global financial architecture.
The two institutions expressed concerns over the lack of inclusivity in the current global financial system and emphasized the need for reforms that would provide developing countries with greater representation in global financial decision-making processes.
Madam Ngone Diop, Director of the West Africa Office, ECA, and Ms. Eyerusalem Fasika, Country Manager at AfDB, made these appeals during separate presentations at the 8th Ghana International Trade and Finance Conference (GITFiC) in Accra. The conference brought together key stakeholders to discuss the pressing issues affecting the global financial landscape.
Madam Diop highlighted how the COVID-19 pandemic and the Russia-Ukraine war have weakened African economies, making them more susceptible to economic shocks. She stressed that African countries need substantial and affordable financing to rebuild their economies sustainably.
“Unfortunately, the global tightening of monetary policy with rising interest rates, along with decreasing official development assistance and concessional financing, could worsen debt vulnerabilities, leading to fiscal deficits, debt distress, and defaults. This jeopardizes progress toward achieving the Sustainable Development Goals,” Diop stated.
She called for a shift in the governance of global financial institutions, such as the World Bank and IMF, to better address the needs and vulnerabilities of developing nations.
A 2024 report by UNCTAD revealed that Africa’s average debt-to-GDP ratio nearly doubled from 30% in 2013 to 61.2% in 2023. As of April 30, 2024, the IMF identified 13 African countries at high risk of debt distress, with seven countries—including Ghana, Zambia, Zimbabwe, and Malawi—currently in debt distress.
Ms. Fasika echoed the call for an urgent and profound reform of the global financial architecture to make it more equitable and ensure African countries have a greater voice. She emphasized that, despite initiatives like the Heavily Indebted Poor Countries (HIPC) Initiative and the G20 Common Framework, Africa’s debt sustainability challenges remain unresolved.
“The Bank estimates that Africa’s external debt rose from $1.12 trillion in 2022 to $1.15 trillion by the end of 2023. With global interest rates at their highest in 40 years and multiple bond debts reaching maturity, debt challenges are likely to worsen in 2024,” Fasika said.
The AfDB also called for an end to the negative risk perception driven by credit rating agencies, which increases borrowing costs for African nations. The Bank projected that African countries will allocate about $74 billion to debt servicing in 2024, a significant rise from $17 billion in 2010.
In response, GITFiC proposed the adoption and implementation of the Global Debt Initiative to provide long-term relief for the economies of least-developed and developing nations.