DUBAI, UNITED ARAB EMIRATES - DECEMBER 06: Akinwumi Adesina, President of the African Development Bank notes that domestic resources alone will not be sufficient to finance the continent’s transformation agenda.
(Photo by Sean Gallup/Getty Images)
The African Development Bank (AfDB) estimates that the continent will need to close an annual financing gap of about $402 billion by 2030 to fast track economic transformation.
According to the bank’s 2024 African Economic Outlook report — released during its annual meetings in Nairobi, Kenya, on Thursday — closing this enormous gap will be made far easier if the global financial architecture is reformed.
The report notes that proposed reforms could secure $169.4 billion a year in development financing, about 42% of the $402 billion gap.
These reforms include rechannelling special drawing rights — an interest-bearing international reserve asset — through multilateral development banks (MDBs). If a recommendation to rechannel $100 billion to these banks is implemented, financing for Africa could rise by about $46.2 billion a year over the next 10 years, according to the report.
Reforms to the Multilateral Development Banks Capital Adequacy Framework, proposed by the G20, could increase financing for Africa by another $5.2 billion a year.
Africa could also save up to $44 billion in accumulated debt arrears if the International Monetary Fund’s (IMF’s) lending into arrears policy is fully implemented, according to the report. The lending into arrears policy determines if and when the IMF can lend to a country that owes money to another member nation.
Moreover, Africa could save up to $74 billion a year in interest payments if the global credit ratings system were fairer and based on fundamentals, the report notes.
The AfDB’s 2024 annual meetings were held in the context of considerable debt stress across the continent — a predicament that will scupper efforts by African countries to achieve the United Nations 2030 social development goals.
Seven African countries are in debt distress and another 13 are at high risk debt distress.
During the opening of the AfDB’s annual meetings on Wednesday, African leaders criticised the slow pace of global financing reform.
Host country Kenya’s president, William Ruto described the prevailing global financial system as being “fundamentally misaligned” to Africa’s aspirations.
In his foreword to the African Economic Outlook, AfDB president Akinwumi Adesina notes that domestic resources alone will not be sufficient to finance the continent’s transformation agenda.
“That will require the international financial system to offer additional impetus by creating a sustainable pathway for Africa’s meaningful participation in resource allocation decisions to unlock vital resources for these investments,” he writes.
“This can be realised only through implementing pressing reforms that move the global financial architecture toward a fairer, inclusive and more transparent system.”
The journalist’s travel and accommodation was sponsored by the African Development Bank.