It is essential to find innovative solutions for managing the debt of African countries, taking proactive measures to secure development financing for Africa, according to members of the panel speaking in Nairobi on Tuesday at a side event during the African Development Bank Group's Annual Meetings, which are taking place in the Kenyan capital from 27 to 31 May.
The session on debt financing and development in Africa was organized by the African Union Commission and the consultancy International Development Reimagined. The panel brought together several high-level speakers: Ahmed Shide, Ethiopia's Minister of Finance, Hanan Morsy, Deputy Executive Secretary and Chief Economist of the United Nations Economic Commission for Africa, Olivier Pognon, Director of the African Legal Support Facility (ALSF) and Mavis Owusu-Gyamfi, Executive Vice-President of the African Center for Economic Transformation (ACET).
Albert Muchanga, Trade and Industry Commissioner at the African Union Commission, opened the discussion by warning of the risk of a possible "lost decade for development in Africa" between now and 2034, due to the following major challenges: the debt burden, the shortage of regional integration, the lack of competitiveness between businesses and inadequate economic diversification.
With 60 percent of African countries spending more on debt servicing than health, Mr Muchanga called for action on three fronts: "We need to ensure average growth on the continent of 10%, far higher than the current 3.5%, diversify our exports by developing our manufacturing industry, and strengthen regional integration by working towards a common market that will help harmonize our policies for greater resilience to climate change and to settle the debt issue."
The question of reforming the G20 Common Framework on debt restructuring was one of the key topics raised by all the panellists.
Ahmed Shide suggested "a more coordinated approach, with more transparency and clearer lines between borrowers and creditors", while Ms Morsy argued for "a reform that would make the Common Framework more effective, limited in time and open to wider country eligibility".
"Reducing risk means providing official creditor guarantees, as was the case in 2023, when African financial institutions helped countries to issue sovereign bonds at lower costs," she advised.
For Mavis Owusu-Gyamfi, "debt is not a bad thing. It all depends on what you do with it. By investing in development, in diversifying our economies and in the competitiveness of our exports, we can break the cycle of long-term debt. And it all starts with us, with the legal and institutional framework. Some countries, such as Zimbabwe, have very good frameworks in this respect."
All the panellists recognized the importance of the legal framework for debt structuring, for example, so-called "climate resilience" clauses, which are a tool for supporting liquidity in the case of a climate catastrophe. Moreover, they emphasized the necessity of ensuring good use of debt at the national level, with the implementation of accountability mechanisms through independent organizations, as in Kenya.
Securing affordable finance at scale to contribute to countries' development, particularly through regional capital markets, strengthening the capitalization of multilateral development banks and concessional financing windows, and optimizing balance sheets while improving countries' internal capacities with an analysis of debt sustainability were some of the ideas put forward by the panellists.
Strengthening the legal capacities of countries and debt managers falls within the remit of the African Legal Support Facility (ALSF), which was set up by the African Development Bank Group in 2008.
The ALSF is very active in the field of sovereign debt, commented Olivier Pognon, offering advice through themed guides, practical handbooks and an academy. It has worked with countries including Somalia and Guinea Bissau on restructuring their debt.
Mr Pognon emphasized the negotiating power of African countries, which has been overlooked for too long, and the necessity of being transparent about debt to achieve results. "Getting legal advice very early on is the best thing that can happen for debt restructuring and avoiding the problems facing African countries. That's the best advice I can give you," he told the audience.
Three countries on the continent are in default on their external debts - Ghana, Zambia and Ethiopia - and 21 others currently have excess debt.
"We need to find sustainable development models by accelerating the mobilization of internal resources, strengthening the role of the private sector and diversifying investments. It's also essential to borrow responsibly," concluded Ahmed Shide, explaining that debt is part of the development equation.
