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AfDB criticises global financial framework, calls for massive reform

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The African Development Bank (AfDB) has criticised the global financial framework and architecture for constraining Africa’s development, urging for a holistic reform that will promote the continent’s economic growth.

Akunwunmi Adesina, President of the AfDB, made this call on behalf of Africa’s flagship development institution last Tuesday, September 19, when he addressed a high-level roundtable meeting at the United Nations General Assembly (UNGA), which took place in New York, USA.

Adesina highlighted five reasons why he thinks the continent has been treated unfairly by the global financial framework, insisting that if they continue in this direction, the continent is likely to remain in its poor state.

He said, “The global financial architecture is constraining Africa’s development in five ways.

“First, it is not delivering the scale of resources needed to allow Africa to achieve its growth and development priorities. Africa faces a financing gap of $1.2 trillion through 2030 to finance its SDGs.”

He blamed multilateral financing institutions for treating Africa unfairly when it came to climate financing.

“Africa, which contributes only 3 percent of global emissions, suffers disproportionately from climate change, losing $7–15 billion annually, which is estimated to rise to $50 billion by 2030,” Adesina said.

“Yet, Africa faces a climate financing gap of $213 billion annually through 2030.”

He also criticised global partners for making debt repayment difficult for the continent “as debt restructuring is disorderly, protracted, and costly—which poses serious risks for African countries facing debt distress.”

Adesina also pointed out one particular area that indeed spelt unfair treatment, pushing global trade relationships in favour of richer countries.

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He explained that “out of the $650 billion of Special Drawing Rights (SDRs) issued by the IMF, Africa received just $33 billion, or 4.5 percent.

The AfDB president also noted that during the COVID-19 pandemic, Africa got very little help compared to the rest of the world. While the world spent a lot of money (19 percent of global GDP, or $17 trillion) to fight the virus, Africa got only a tiny bit (0.5 percent of global GDP, or just $89 billion).

He explained that the $89 billion received showed that Africa didn’t get as much support during the crisis.

Adesina made five key suggestions, one of which is that the private sector must be leveraged, especially the $145 trillion of assets under management by institutional investors.

He said, “Multilateral Development Banks must therefore deploy risk-mitigating instruments, including FX risk mitigation, to leverage the trillions of dollars under management by institutional investors in climate-related projects.”

For the fight against climate change on the continent, Adesina said that global finance institutions must simplify the process of getting climate funds.

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He said, “The global climate finance architecture must be simplified, better coordinated, and strengthen the capacity of countries to access climate funds. Contingency clauses should be in all loans, freeing up countries from loan repayments when they face climate shocks.”

The president urged multilateral development banks to change their business models in a way that will make it easier for African countries to gain better access to funds. He also mentioned that “the G20 common framework on debt resolution should be fast-tracked to deliver debt restructuring and debt resolution faster.”

The other recommendation was, “To deliver more financing, Multilateral Development Banks must be better capitalized. This requires increasing their capital base, especially through large increases in paid-in capital, which they need to leverage more financing.”

In particular, he said that “the Special Drawing Rights (SDRs) from SDR donor countries should be re-channelled to Multilateral Development Banks.”

His reason was that it would allow the SDRs to be leveraged by 3–4 times while preserving the reserve asset quality of the SDRs.

“What is needed now is for five donor countries to form a group and rechannel SDRs to Africa through the African Development Bank. For example, a $25 billion SDR rechanneling would create $100 billion in additional financing for Africa.

“The SDR rechanneling is at no cost to taxpayers in donor countries and has zero risk of loss. SDR-rechanneling through MDBs is the best model available to leverage and deliver the trillions of dollars needed for development to be accelerated. For example, the issuance of $500 billion in new SDRs to tackle climate change, if rechanneled through MDBs, will deliver $2 trillion in global development financing. This will complement the IMF’s efforts,” the AfDB president said.