African-led debt solutions take centre stage with AfDB’s new debt network

Onome Amuge

The African Development Institute of the African Development Bank recently unveiled the African Debt Managers Initiative Network (ADMIN), a new programme aimed at providing a platform for African nations to develop and exchange innovative debt management strategies.

The ADMIN programme was inaugurated in Addis Ababa, Ethiopia, with the inaugural peer learning event themed “Developing and Deepening Domestic Debt Markets in Africa”,  highlighting the programme’s focus on cultivating resilient, sustainable debt solutions tailored to the unique needs of African countries.

Speaking on the importance of the newly established network, Coulibaly Abdoulaye, AfDB’s director identified the ADMIN’s mission to equip African debt managers with unique solutions and knowledge exchange opportunities, ultimately enabling them to address the specific debt challenges facing their respective countries.

According to Abdoulaye, ADMIN aims to not only strengthen the debt management capacity of African officials and institutions, but also to facilitate rapid resolution of existing debt challenges, restore economic stability, foster inclusive growth, and promote knowledge sharing among debt managers across the continent’s member countries.

Eric Ogunleye, director, African Development Institute, highlighted the mounting financing demands arising from infrastructure development, poverty reduction, climate change mitigation, and security concerns, as the primary drivers of increased borrowing by African countries.

This growing debt burden, coupled with weak debt management capacity in many African countries, has resulted in worsening macroeconomic outcomes and an inability of many African governments to effectively respond to shocks, thereby exacerbating debt distress in certain countries, Ogunleye warned. These trends, he stressed, underline the urgency for innovative, homegrown solutions to tackle Africa’s debt challenges.

“There is, therefore, a growing need to strengthen debt management capacity in African countries,” Ogunleye told participants.

According to Ogunleye, as of 30 April 2024, debt sustainability assessment data revealed that 13 out of 38 African countries (33.3%) were deemed to be at high risk of debt distress, while 6 of the 38 (15.8%) were already in debt distress.

Ogunleye underscored the gravity of these findings, noting that these figures point to the urgent need for African countries to pursue innovative, homegrown debt management strategies that can effectively address the continent’s debt challenges and prevent further economic instability.

Expanding on the issue of African debt, the  African Development Institute director explained that an increasing proportion of African debt is now owed to external bondholders and non-Paris Club creditors. These debtors often deal directly with debtor countries, making it more difficult for Africa to negotiate favourable terms for its debt servicing obligations.

According to Ogunleye, this growing share of high-cost external debt is imposing a substantial burden on African countries, consuming an average of 18 percent of their total government revenue.

The primary topic of discussion at the ADMIN event was the crucial role that a developed African domestic debt market could play in addressing the continent’s urgent need for cheaper and more stable sources of debt financing.

The meeting emphasised the importance of sound debt management frameworks, inter-country networking, and peer learning as tools to support the growth and maturation of domestic debt markets across the continent.

Johan Krynauw, the former director of debt management at South Africa’s National Treasury, urged African nations to forge closer ties and engage in collaborative knowledge-sharing efforts to strengthen their ability to address debt management challenges.

“In recent years, there have been many institutional initiatives from outside the continent to help African countries. The question is always why it did not work, and why we still have public finance and debt management problems today,” Krynauw said.

Krynauw asserted further that Africa has the accumulated skill, knowledge, and experience to develop solutions that are specifically tailored to the continent’s unique circumstances.

Jean Yves Naka, director of research and strategy at the Bourse Régionale des Valeurs Mobilières (BRVM), the regional stock exchange for the West African Monetary Union, spoke on the critical role that domestic markets play in Africa’s economic development.

“Debt vulnerability remains a major challenge for African countries, especially in achieving development goals such as the United Nations Sustainable Development Goals and the African Union’s Agenda 2063. However, the development of the African domestic debt market is one way to better address the situation,” he said.

The meeting brought together a diverse group of stakeholders, including debt managers, heads of debt management offices, capital market operators, commercial bankers, and regulators such as securities and exchange commissions and central banks.

The goal of the session was to explore practical methods for developing and deepening domestic debt markets in Africa. The discussions provided valuable insights for African countries that currently have either no domestic debt markets or very nascent ones, offering guidance on how to establish and deepen these markets.