African Development Bank Chief Urges Fairer Global Financial Architecture for Africa

Innoventia Africa – The global financial architecture needs to be reformed to provide more financing for Africa to adapt to climate change, according to the African Development Bank (AfDB) President, Dr. Akinwumi Adesina, who has outlined five ways in which it can be made fairer.

Speaking at a high-level roundtable at the United Nations General Assembly last week, Adesina said that the current system is not delivering the scale of resources needed for Africa to achieve its growth and development priorities.

He said that Africa faces a financing gap of $1.2 trillion through 2030 to finance its Sustainable Development Goals (SDG).

Adesina also noted that the international financial architecture is not providing climate financing at the scale needed for Africa to adapt to climate change.

“Africa contributes only 3% of global emissions and suffers disproportionately from climate change, losing $7–15 billion annually. This figure is expected to rise to $50 billion by 2030. Yet, Africa faces a climate financing gap of $213 billion annually through 2030,” he said.

Another constraint identified by Adesina is that the current international financial architecture makes debt restructuring too complex to achieve. He said that this poses serious risks for African countries facing debt distress.

Adesina said that the global financial architecture skews international emergency financial resources in favor of richer countries that least need the resources. He noted that of the $650 billion in Special Drawing Rights (SDRs) issued by the International Monetary Fund (IMF), Africa received just $33 billion or 4.5%.

He also criticized the current system for delivering uneven fiscal responses for developing countries during times of global shocks. He said that while total fiscal measures taken to fight the COVID-19 pandemic amounted to $17 trillion or 19% of global GDP, Africa received just $89 billion, which represented 0.5% of global value.

Adesina’s Proposed Solutions
  • Scale up financing for global development by leveraging the private sector. He said that multilateral development banks must deploy risk mitigating instruments to leverage the almost $145 trillion in assets under management by institutional investors for climate-related projects.
  • Simplify the global climate finance architecture and make it better coordinated. Adesina also suggested that loans should contain contingency clauses that free up countries from loan repayments when they face climate shocks.
  • Multilateral development banks should change their business models to deliver greater volumes of concessional financing for countries. Adesina said that it was necessary to fast-track the G20 Common Framework for Debt Treatments to deliver debt restructuring and debt resolution faster.
  • Better capitalize multilateral development banks. The AfDB president said that this requires an increase in their capital base, especially through large increases in paid-in capital, which is needed to leverage more financing.
  • Channel a portion of IMF Special Drawing Rights (SDRs) from SDR donor countries to multilateral development banks. He said that the AfDB and the Inter-American Development Bank had developed a model that would allow for SDRs to be leveraged by a multiple of three to four, while preserving their reserve asset quality.

Adesina said that what was needed now was for five donor countries to form a group and help rechannel SDRs to Africa through the AfDB. IMF Managing Director Kristalina Georgieva, seated next to Adesina, said her institution supported the model.
Adesina said a $25 billion SDR rechannelling would create $100 billion in additional financing for Africa.

Adesina concluded by saying that to achieve a fair, more just, and equitable world, “we must change the structure, conduct and performance of the global financial architecture.” He added that the world’s collective future depended on it.

Adesina’s proposals offer a blueprint for how the global financial architecture can be made fairer for Africa.

Felix Tih, editor in chief of Innoventia Africa Magazine, believes that by implementing Adesina’s recommendations, the world can help Africa achieve its development goals and build a more prosperous future for all.

“Africa has to put pressure and keep working to push for a fairer global financial architecture,” said Tih.

By Marina Bisse

 

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