Eligible low-income African countries can now secure non-concessionary resources from the African Development Bank (AfDB)'s sovereign window, following a policy proposal approved by the Board of Directors on May 13 2014 in Tunis.
The 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 with access to resources from the Bank's non-concessionary sovereign window, for financing viable projects.
Sovereign resources are resources drawn from the public window or sovereign window to finance public sector operations, as opposed to the private sector window, which provides non-sovereign guaranteed loans.
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 countries. "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 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 proposal, the Board underscored the fact that the 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. The policy would also enable the Bank to broaden its base of potential clients.
In addition, the policy will enhance the Bank's delivery capacity by improving the role of its non-concessional envelope in supporting the development agenda of the continent through sovereign instruments. Moreover, 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 improving the DSA as well as leveraging other knowledge products that would enhance the Bank's effectiveness in policy design and development of the RMCs.
