Low income African countries are now eligible to secure loans from the African Development Bank Group's (AfDB's) sovereign loan window, following a review of the institution's credit policy approved by the Board of Directors on Tuesday, May 13 in Tunis.
The "Diversifying the Bank's Products to Provide Eligible ADF-Only Countries Access to the AfDB Sovereign Window," proposal allows the Bank to respond proactively to the improved economic conditions in the Regional Member Countries (RMCs) over the past decade, by providing eligible low-income countries access to resources from the Bank's sovereign window, for financing viable projects.
The policy underscores the Bank Group's recognition of the strong economic progress of African countries during the last decade, and its mandate to help sustain inclusive growth in its RMCs.
"The proposal reconciles the need to address the demand for resources to speed up the structural transformation of low-income African countries in a sustainable manner, RMCs' debt sustainability, as well as the Bank's financial stability," according to the policy paper.
About 37 countries or nearly 70% of the RMCs currently fall under the low-income countries category that is eligible only to concessionary resources from the African Development Fund (ADF).
However, the paper argues that diminishing scarce concessionary resources would be inadequate to finance and sustain the current high rates of growth and transform the structure of Africa's economies to generate much-needed employment. This view is bolstered by the fact that many African countries borrow non-concessionary funds in the capital markets at rates that are significantly higher than what they could obtain from the Bank.
Access to the AfDB's sovereign resources by low-income countries would be available to low or moderate risk of debt distress countries and subject to IMF's Debt Sustainability Assessment (DSA), sustainable macroeconomic position as well as stringent oversight by the Bank's Credit Risk Committee, among other safeguards.
In approving the policy, the Board underscored the fact that policy responds to the drive to channel more resources to the low-income countries in line with its client assessment and the Bank's Ten Year Strategy. It would also enable the Bank to broaden its base of potential clients; enhance its delivery capacity by improving the role of its non-concessional envelope in supporting the development agenda of the continent through sovereign instruments. In addition, the move will help diversify the Bank's sovereign portfolio, minimize concentration risk within the portfolio and increase the Bank's footprint on the continent.
Board members emphasized the need for internal capacity building especially with regards to the DSA as well leveraging other knowledge products that would enhance the Bank's effectiveness in policy design and development of the RMCs.
