DI supports the call for transformative financing for Africa's development

Representatives from Development Initiatives, the ONE Campaign and the African Center for Economic Transformation last week wrote to COM56's African Ministers of Finance, Planning, and Economic Development.

"We commend your leadership and commitment to addressing our continent's pressing challenges. As we approach the significant gathering of the 56th Conference of Ministers of Finance and Planning, we share this memorandum with you and other honorable COM56 delegates to unlock progressive financing to support Africa’s needed development priorities by leveraging its full membership in the G20.

The continent has continued to face economic challenges from the COVID-19 pandemic and its aftershocks, the conflict between Russia and Ukraine, and the impacts of climate change. Recovery has been sluggish, held back by limited fiscal capacity, retreating external financing and investment, diminished foreign reserves, and escalating debt servicing expenses. Heightened liquidity crunches and rising borrowing costs from capital markets have further pushed many nations into significant debt distress and macroeconomic instability, with traditional debt resolution approaches often proving too cumbersome and slow. We are off-track at the mid-point of the Sustainable Development Goals and a world free of poverty is out of sight.

Africa continues to call for reforming the global financial architecture by addressing the cost of capital, increasing innovation by using non-inflationary tools such as SDRs that can be recycled through the African Development Bank, addressing the injustice in the credit rating system, and increasing representation in the global financial system governance. The current systems were created for a time that is vastly different from today’s challenges.

As part of the call for reform is a demand for tripling the World Bank’s International Development Association (IDA) — the world’s largest source of affordable finance for developing countries. IDA has a long track record of assisting the most vulnerable countries, most of which are in Africa, through crises and remains a lifeline for millions of people. An investment in IDA is an investment in Africa’s future. More than half of IDA countries are in Africa, and in the most recent fiscal year, Africa received 75% of total IDA commitments; eight out of the top 10 IDA borrowers were African.

IDA funds are important to Africa for several reasons. It operates on a demand-driven model where African countries determine how to tailor these funds based on their development needs. The concessional nature of IDA funding makes it highly favourable in a rising interest rate environment, and its rapid responsiveness to crises sets it apart, with the ability to be deployed in just 3 months - a stark contrast to the 18-48 months observed for traditional World Bank loans. For donor countries, it has a strong return on investments, leveraging $4 for every $1 invested. Amid the global economic downturn, it is critical for donor countries to recognize the value of IDA and the jeopardy posed by a lack of sufficient replenishment.

Furthermore, for a successful replenishment, we need African governments to recommit to strong accountability for all resources, international and domestic. This can include increased citizen engagement and oversight, more robust anti-corruption efforts, and improved incentives and processes. A commitment to accountability will build the confidence of both global donors and citizens.

Therefore, we urge you and other African Ministers of Finance and Planning to:

• Make a powerful and persuasive case to triple the financing basket of the International Development Association (IDA) to reach $279 billion by 2030, which has been endorsed by the G20 Independent Experts Group—convened under the auspices of last year’s G20 Indian Presidency— based on an analysis of needs. African Ministers should build on and champion this call throughout this year’s IDA21 replenishment process, including through sharing examples of IDA’s impact and potential impact in their respective countries. Robust and sustained engagement, including at the highest political levels at the upcoming African Heads of State and Government IDA meeting to be hosted by Kenya’s President William Ruto in April this year, will be integral to pave the way towards a successful replenishment.
• Advocate for an increase in commitments by OECD DAC countries towards IDA, diversification of IDA donor pool (including solidarity contributions from borrowing countries), and emphasize on building and sustaining IDA’s equity to enable it to meet the growing demand for grants taking into consideration debt distress in most African countries.
• Continue to advocate for reforms that will provide countries with much-needed low-cost financing. Revamping multilateral development banks so they are better, bigger, and more responsive to countries’ needs is essential. The Ministers can be an instrumental voice in ongoing efforts to make sure MDBs are aligned with Africa’s aspirations and priorities, including, addressing identified weaknesses such as inflexibility, complex procurement requirements, and excessive conditions as well as enhancing technical assistance.
• Emphasize on collaboration between multilateral development funds and bilateral development agencies to enhance complementarities and impact and minimize duplication and competition.
• To capitalize on the AU’s membership in the G20 that provides the continental body with an important platform to champion calls for fairer governance structures within MDBs to reflect Africa’s growing importance and call for IDA to be on the agenda in every G20 convenings. This includes advocating for increased representation in decision-making bodies and processes as well as inclusive and merit-based leadership selection procedures.
• Increase citizen participation in the deployment of funds within our African countries. This provides a strong incentive to increase the call for funds and confidence in how Africans deploy the funds.

The undersigned:

Development Initiatives

The ONE Campaign

The African Center for Economic Transformation