African Ministers of Finance, Planning and Economic Development have called for decisive action to reform the global debt architecture to enable the investments needed for achieving sustainable development and climate goals around the world.
The call was made at a meeting of the High-level Working Group on the Global Financial Architecture on the margins of ECA’s 55th Conference of African Ministers of Finance, Planning, and Economic Development in Addis Ababa, Ethiopia.
Coordinated by the Economic Commission for Africa (ECA), the Group comprises African Ministers of Finance, Planning and Economic Development, the African Union, the African Development Bank, Afreximbank, and the World Bank, and includes the participation of IMF staff and Executive Directors.
The Group serves as a forum to develop reform proposals for the global financial architecture and strengthen the African voice on the global stage.
Hanan Morsy, ECA’s Deputy Executive Secretary and Chief Economist, noted that 2023 presents a critical moment to progress reform efforts advocated by the Group. Many of the Group’s ideas align with the UN Secretary-General’s proposals for international financial architecture reform, which form part of his call for an SDG stimulus of at least $500 billion per year to achieve Agenda 2030.
The Group underscored that the Global Sovereign Debt Roundtable, a joint initiative by the Indian G20 presidency, the IMF and the World Bank, the Summit for a New Global Financial Pact in June as well as the Climate Action Summit, the Climate Ambition Summit and the SDG Summit to be held in September are important opportunities to advance the global financial architecture reform agenda.
The Ministers also expressed their hope that Africa, represented by the African Union, would finally obtain a permanent seat in the G20, thereby further strengthening Africa’s voice on the global stage.
Debt and the Common Framework
Ministers voiced concerns over rising debt vulnerabilities in Africa, as eight African countries face debt distress and 13 are at high risk of debt distress per the IMF-World Bank’s Debt Sustainability Analysis. They acknowledged that the G20 Common Framework, designed to address today’s more diverse creditor profiles, has not effectively supported nations in debt distress.
Ministers urged the G20 to urgently overhaul the Common Framework to make it more effective, time-bound, and transparent while providing debt service standstill for applicants.
Key proposals include forming Expanded Creditor Committees with private sector creditors to smooth coordination challenges, establishing a ‘Comparability of Treatment’ formula to minimize technical disputes, and bolder use of the IMF’s Lending into Arrears Policies to reduce the leverage of holdout creditors.
In the long run, the establishment of a Multilateral Creditor Club, acting in partnership with debtors, could support the coordination of future Common Framework restructurings and oversee outstanding global debt challenges.
Ministers called for reviewing and updating the IMF-World Bank Debt Sustainability Analysis to make it more SDG- and solvency-focused. They also stressed the need to fortify the international debt legal framework through enhanced collective action and force majeure clauses, anti-vulture fund legislation, and state-contingent debt instruments.
Ministers also expressed concerns about biased credit ratings for many African countries and emphasised the need to address transparency and regulatory issues.
Sustainable Debt Coalition
Ministers welcomed and endorsed the Sustainable Debt Coalition initiative, which was presented by Mohamed Maait, Minister of Finance of Egypt. The Coalition aims to increase access to affordable green and SDG finance while supporting debt refinancing or issuance aligned with debtor-defined sustainability objectives.
The Coalition fosters consultations at the intersection of debt, climate, and development. Focus areas include debt-for-climate investment swaps, green and blue bonds, blended finance, the sustainable budgeting approach, automatic debt suspension for climate events (so called ‘hurricane clauses’), prioritising grant finance, and debtor-defined key performance indicators.
ECA has been requested to coordinate in the interim the Coalition’s Secretariat and collaborate with partners to advance its goals ahead of COP28.
The High-Level Working Group will advance its discussions in support of a reformed global financial architecture on the margins of the IMF and World Bank Spring Meetings in Washington in April 2023.
