BY MENGISTEAB TESHOME
Grants are funds provided with no expectation of repayment. Concessional loans, or soft loans, have more generous terms than market loans. These generally include below-market interest rates, grace periods in which the loan recipient is not required to make debt payments for several years or a combination of low interest rates/grace periods.
The availability of free or cheap capital in the form of a grant or concessional loan can be a huge boon to project developers facing financing challenges. While there are several sources of grants and concessional financing, the funds are limited, and competition can be considerable.
Some limit or restrict the countries in which they can be used, or they require a portion of funds be spent on equipment or services from donor countries. Grants sometimes have significant reporting and other administrative requirements, which cost money in the form of added staff time and transactional costs.
Experts drawn from AfriCatalyst and the Economic Commission for Africa (ECA) shared their expertise at a one-day virtual workshop organized by AfriCatalyst and ECA that aims to Catalyzing Access to the IMF Resilience and Sustainability Trust (RST).
We are witnessing with financial, health and climate shocks threatening to reverse two decades of development progress in Africa. Experts underlined for urgent concessionary financing to help the continent build resilience and boost economic growth.
The experts made the remark during a one-day virtual workshop on Catalyzing Access to the IMF Resilience and Sustainability Trust (RST) organized by AfriCatalyst and the Economic Commission for Africa (ECA). According to the experts, a mix of shocks including food and fuel impact of the Russia-Ukraine war, climate change impacts, conflict, and tighter global financial conditions have increased Africa’s development financing gap and debt vulnerability.
ECA Director, Macroeconomics and Governance Division, Adam Elhiraika said that in the past six decades, every global recession has led to a rise in global government debt and that many African countries had increased their public debt.
A bulk of the public debt was incurred between 2020 and 2021 when countries sought to combat the impacts of the Covid-19 pandemic, he added. As a result, many countries were struggling with high debt and in servicing it which was impeding poverty reduction and hindering their recovery from shocks.
“Despite national and international efforts, an increasing number of countries on the continent continue to struggle with substantial debt burdens and servicing their debt, with some already in debt distress or at high risk of debt distress,” Elhiraika said, emphasizing that this was impeding resilience-building to future shocks, which is key for sustainable development.
In a bid to help developing and lower middle-income countries build resilience to external shocks and achieve sustainable growth, the International Monetary Fund (IMF) established the Resilience and Sustainability Trust (RST).
Under the RST, is the Resilience and Sustainability Facility (RSF), an innovative financing instrument to help countries address long-term structural challenges, including climate change adaptation and mitigation and pandemics risks. AfriCatalyst, an-Africa based global development advisory firm, has developed a practical guide to inform policy makers and domestic stakeholders about the RSF’s key features, eligibility criteria, and objectives, according to ECA.
The guide also explores how the IMF assistance under the RST could support the design and implementation of national macroeconomic policies to integrate climate and pandemic risks as well as the cost of adaptation into their macro-fiscal frameworks.
AfriCatalyst Founder and CEO, Daouda Sembene, said the RST had potential benefit for African countries, reeling under high indebtedness. With the support of the Bill and Melinda Gates Foundation, AfriCatalyst was bolstering evidence generation and technical advisory support for African policymakers to promote access of Sub-Saharan African countries to IMF financing under the RST.
Sembene noted there was high demand for climate financing, but available resources were limited. The IMF was currently seeking 40 billion USD for the RST but had only effectively raised 26 billion USD. “African countries need additional resources,” Sembene said, remarking that the cumulated climate finance of 52 African countries under the Nationally Determined Contributions was estimated at 2.3 trillion USD.
Senior Advisor, AfriCatalyst, Fenohasina Rakotondrazaka Maret said access to this financing will be granted based on the nations’ reform strength and debt sustainability. The concessional loans have a 20-year maturity and a ten-and-a-half-year grace period. Borrowers will pay an interest rate that is a modest margin over the three-month SDR rate, with the poorest countries getting the most favorable financing terms.
Speaking ahead of next week’s Conference of African Ministers of Finance, Planning and Economic Development in Addis Ababa to participants at the 41st meeting of the Committee of Experts Acting Executive Secretary of the Economic Commission for Africa, Antonio Pedro said that Africa must lead the charge in mobilizing domestic resources to recover from multiple economic and social crises which have deepened poverty and widened inequality on the continent.
“Africa currently leads in global poverty,” Pedro cautioned that without bold financial and climate action, Africa will be locked into a poverty trap. With more than half of the world’s poor – 54.8 per cent in 2022 being in Africa, the continent had overtaken South Asia with 37.6 percent, while the COVID-19 outbreak had pushed 62 million people into poverty in just one year, with an additional 18 million estimated to have joined their ranks by the end of 2022.
As many as 149 million non-poor remain at high risk of falling into poverty, Pedro said, further elaborating that 695 million people in Africa were either poor or face the risk of falling into poverty. “Women and girls remain particularly vulnerable, and we are facing a potential reversal of the hard-won gains made on gender equity,” said Perdo, adding that, “Africa cannot just stay the course and hope that it gets better. It must lead the charge.”
The challenges are not insurmountable if Africa can implement systemic change and build resilient and sustainable systems, shifting away from a primary focus on efficiency that has dominated past decades. Pedro said investments in sustainable building up capital in critical assets – including human, infrastructure, and natural resources – were needed to provide an environment that can facilitate achieving the ambitions of the 2030 Agenda and Agenda 2063.
Therefore, governments must design strategies that simultaneously integrate economic, social and environmental objectives, he noted. “First, we need to finance our development,” Perdo urged, emphasizing that getting the macroeconomic fundamentals right can unlock the potential of home-grown solutions.
Nonetheless, he said, Africa still needs a fairer and more just global financial architecture that responds to its needs, bemoaning that many countries currently cannot access international financial markets because of rising interest rates and unworkable existing debt relief mechanisms.
He noted that Africa must aggressively pursue sustainable industrialization and economic diversification to transform its natural resources into tangible benefits for its people. The battery and electric value chain development was a case in point. Ethiopia Planning and Development of the State Minister, Nemera Gebeyehu Mamo, for his part emphasized that Africa must accelerate changes needed for its economic recovery.
“Poverty is Africa’s most pressing challenge,” Mamo told participants, remarking that Africa should advocate for financial changes to aid recovery. “Climate action is impossible without finance,” stressed Mamo, noting that leveraging climate change financing can help tackle poverty in Africa.
THE ETHIOPIAN HERALD TUESDAY 11 APRIL 2023
