African nations demand debt relief, increased aid and financial reform

Last week, African government leaders gathered to outline a blueprint to tackle the continent’s mounting debt burdens, calling on high-income countries to fulfill their official development assistance obligations and increase contributions to the International Monetary Fund’s initiatives for poverty reduction. Gathered at the African Union Conference on Debt in Lomé, Togo, delegates from African Union member state governments and finance institutions adopted a joint declaration on debt. With over 20 African countries on the continent currently facing debt distress, the conference was the first that the AU has held on debt. The declaration comes at a strategic time given the upcoming 4th International Conference on Financing for Development, or FfD4, and the G20 summit to be held later this year — both of these an opportunity to address the power imbalances in the debt restructuring processes. The declaration forms the basis of the continent’s mandate on debt going to FfD4, where reforms of the global financial architecture will be addressed. The conference “has put into central focus the inadequacies and the power imbalances that exists in the current debt restructuring process,” Jason Braganza, the executive director of the African Forum and Network on Debt and Development, told Devex in an interview. “We are in a very critical phase in the negotiations for a new global debt architecture dispensation under the auspices of the United Nations.” As laid out in the declaration, the debt situation on the continent means AU member states face a daunting task ahead, partly due to complexities in debt restructuring given the wide variety of creditors countries have had to take on, as well as reduced development financing flows to the continent that risk widening financing gaps. Given the continent’s continued sliding into debt, the G20 Common Framework — a mechanism to provide low-income countries with coordinated debt restructurings, with broad creditors’ participation — isn’t working as well as it should. It has “not provided a pathway towards the quick restoration of debt sustainability, creating some considerable scepticism as to its potential to deliver effectively for highly indebted countries, particularly in Africa,” the declaration text stated. It also said that African nations should project a strong and unified voice on the international stage to push for reforms to the global financial architecture, particularly when it comes to debt. Among the key reforms it called for are changes to the G20 Common Framework, improving debt analysis and management tools, and for high-income countries to fulfil their pledges to IMF trust funds, and recognize the importance of concessional financing and other capital flows to address the debt problems on the continent. The declaration also called for debt forgiveness and a raft of other reforms of the global financial architecture, which they hope will come through the establishment of a United Nations Framework Convention on Sovereign Debt. The declaration also recommended debt management practices to AU member states, in an attempt to get their own house in order by improving policies, public financial management, and tax systems. On high-income countries, ODA and IMF commitments According to the Organization for Economic Co-operation and Development, official development assistance, ODA, dropped by 7.1% in 2024. In their declaration, AU member states urged high-income countries to fulfill their commitments to allocate 0.7% of their gross national income to ODA. These aid cuts mean lower-income countries have had to borrow more to make up for deficits, further exacerbating debt challenges, according to Braganza. Still, considering the recent cuts and projected decline in aid budgets from countries including the United States, the United Kingdom, Germany, Sweden, and the Netherlands, meeting the 0.7% threshold will be a challenging call. The declaration also called on high-income nations to fulfil their pledges on an increased allocation to both the IMF’s Poverty Reduction and Growth Trust, or PRGT, and the Resilience and Sustainability Trust, or RST. PRGT is IMF’s main vehicle to provide concessional financing to low-income countries. Its interest rate is currently at zero, and it was instrumental in helping low-income countries during the COVID-19 pandemic. Since then, PRGT has faced high demand from low-income countries while donor countries have been slow in providing much-needed grant funding. Due to this gap in funding, in 2024, the IMF was forced to redirect income from its general resource accounts to PRGT in what is known as the GRA distribution. This allowed IMF to lend $3.6 billion annually to low-income countries in the hope that donor countries would fulfill their commitments to the PRGT fund. The Resilience and Sustainability Trust, on its part, provides affordable long-term financing to support low-income and vulnerable middle-income countries undertaking reforms related to climate change and pandemic preparedness. While RST was set up three years ago, uptake of its funds by target countries has been low. As of October 2024, only 49% of its resources had been committed to borrower countries and even lesser already disbursed by IMF. The low uptake has been attributed to eligibility issues for the target countries due to stringent requirements. A fulfillment of pledges to both PRGT and RST funds would ensure that low-income countries that are eligible have access to low-interest loans for critical investments in poverty eradication and those leaning towards climate change adaptation and mitigation. For Braganza, the focus on these IMF trusts in the declaration is misplaced. AU member states should instead have focused on contributing more to the African Development Fund, or ADF, themselves, he said. ADF is the African Development Bank’s concessional window, issuing grants and concessional loans to low-income countries in Africa. With more contributions to ADF, African countries will get to make decisions on how resources in the bank are allocated. It also contributes to the voting share and rights at the African Development Bank. “A conference like this should be more proactive and say we are going to take charge of our own replenishment on the continent,” he said. A common African position on debt The African states also resolved to adopt a common African position on debt and to use the AU position in the Group of 20 major economies to project “a strong and unified African voice on the international stage, with a view to reforming the global financial architecture.” While calling for the reforming of the G20 Common Framework, they also want to advocate for bigger, better, and more effective multilateral development banks. The AU became a permanent member of the G20 in 2023 and the G20 summit in South Africa is going to be its second as a full member. However, the common African position at the G20 is reportedly facing headwinds. A source at the debt conference privy to the G20 negotiations told Devex that South Africa, which has the presidency of the G20, has been non-committal on the common African position at the G20. The other countries believe that this would slow down progress at the G20. “What they’re doing is affecting the ability of the African group to have a stronger position. What we’ve been trying to negotiate with them is to tell them that we understand they have the Presidency of the G20, and it’s complicated for them to defend the common framework. So, what they need to do is to carry on the common framework stuff, but don’t block the African group from having a more proactive and progressive position,” one source told Devex anonymously. Fadhel Kaboub, president of the Global Institute for Sustainable Prosperity, who was in attendance at the AU debt conference, doesn’t see the G20 membership as consequential, calling it a “club of colonizers” and stating that the rules of the game were already established prior to the AU’s invitation. Kaboub would prefer to see a systemic overhaul of the entire global financial architecture, saying that the existing Special Drawing Rights allocation is just a drop in the bucket. “We probably have to make those institutions obsolete to the point where they have to either join a new system or just become irrelevant and disappear,” he told Devex at the sidelines of the conference. As eyes shift to the FfD4 conference in June, Braganza believes that while some of the ideas put forward by the AU debt conference were repetitive and off the mark, some are realistic and achievable in the short to medium term. These include an enhanced debt service suspension initiative that is non-interest-bearing and the achievement of a U.N. Convention on Sovereign Debt. “This is because the Africa Group in New York are pushing for a very progressive, radical, and more democratic restructuring process that is intergovernmental in nature,” he said, referencing the Africa Group at the United Nations. Kaboub was also optimistic about the upcoming FfD4 conference with regards to pushing for solutions to Africa’s debt challenges. “After all, the U.N. tax convention framework came from FfD3 … With the Africa Group uniting behind a single transformative agenda item and eventually delivering in a U.N. vote, we can change the world,” he said. Debt restructuring At the conference, government officials insisted on debt restructuring and other reforms to the global financial architecture. Speaking at the conference, Soares Sambú, Guinea-Bissau’s minister for economy, said that the G20 should negotiate for cutting debt for countries facing difficulty in repayment, that the Paris Club should “consider restructuring of all debt,” and added that African countries should be able to borrow at lower rates. On his part, Buah Saidy, the governor of the Central Bank of Gambia, speaking at the conference, called for a “suspension of debt servicing for countries embarking on debt restructuring.” Reflecting Saidy’s and other officials’ calls, the declaration mentioned the need for debt forgiveness, allowing for previously restructured debts to be eligible for restructuring, and a need for more concessional financing. The declaration also called for the implementation of Special Drawing Rights re-channeling to regional multilateral financial institutions and reforming SDRs to “incorporate countries’ liquidity needs beyond IMF quotas.” SDRs are a reserve currency issued by the IMF. According to the African Development Bank, if SDR rechanneling is successful, it will unlock significant funds to “catalyse sustainable development.” An action plan for AU member states The declaration also included concrete actions for member states to take: One is for the expediting of the establishment of a Pan-African credit rating agency, and the other is developing legislation on fiscal responsibility to ensure debt sustainability. The declaration bet on a Pan-African credit rating agency to offer solutions on access to affordable credit. Speaking to Devex on the sidelines of the conference, Daouda Sembene, CEO of AfriCatalyst, a development advisory firm, cited a 2023 study by the U.N. Development Programme, which stated that subjective credit ratings by major agencies such as S&P Global, Moody's, and Fitch Ratings have cost African countries $74 billion in missed financing opportunities. Given this fact, Sembene shared Ghanaian President John Mahama’s call for more transparency in methodologies used by credit rating agencies. He said that it has to be clear what the methodologies are, how they are built, and how they are implemented. “I think the key issue is how to make sure Africa is objectively and fairly rated, so that the risk premium is reduced or eliminated,” Sembene said. On home-grown debt management practices, the declaration committed to “improving public financial management, including effective resource allocation and budgeting, strong fiduciary oversight on spending, and appropriate audit institutions and procedures.” Abena Osei-Asare, a member of Parliament from Ghana, told Devex that member states are ready to enact such legislation and implement them in order not to fall into debt distress. “The buck stops with the parliamentarians because it is the processes and legal safeguards that we put in place that the government or the executive will have to implement,” she said. For a few years now, she explained that the Ghanaian Parliament has been enacting legislations, including amendments to its Public Financial Management Act, to fill the gaps that they have that affect debt sustainability. One such amendment demands that in every given financial year, the primary balance is 1.5% surplus of GDP. “That is one of the safeguards we have put in the law. And two, we have set for ourselves some debt ceilings, debt-to-GDP ratio ceilings that will help us if we are able to live within that,” she said. Ghana, which is undergoing an IMF debt restructuring program, has now set a target debt ceiling of 55% by 2028, with the current ratio standing at 67%, according to Osei-Asare. With the declaration done, it is now up to the AU and its member states to advocate collectively for the reforms around debt internationally and implement debt management initiatives domestically. “The ideas that I have fronted today are ideas that we have control over. We should take advantage of those and put them in place. For those that we have no control over, we should speak up until we are heard,” Osei-Asare said.