Latest news with #AFSM
Yahoo
29-05-2025
- Business
- Yahoo
Mauritania's Tah elected president of AfDB, Africa's top development bank
By Loucoumane Coulibaly ABIDJAN (Reuters) -Former Mauritanian Finance Minister Sidi Ould Tah has been elected president of the African Development Bank (AfDB), the lender said on Thursday, after a poll during the bank's annual meeting in Ivory Coast. He will replace Akinwumi Adesina, a Nigerian economist who will step down in September after completing the maximum two five-year terms in office. The AfDB, which has $318 billion in capital, is owned by 54 African states and non-regional nations including the U.S., Japan and Saudi Arabia. Its biggest shareholder is Nigeria. Tah will take over as the bank grapples with Washington's plans to cut $555 million in funding to its African Development Fund (ADF), which offers low-priced financing to more than 30 of the continent's poorest nations. "African economies are under immense pressure, facing multiple crises like rising debt burdens, climate shocks, inflation and limited fiscal space," said Serah Makka, executive director for Africa at One, a group that campaigns against extreme poverty. Between sclerotic infrastructure and climate investment needs, African nations have huge financing needs. The AfDB has pegged the annual financing gap for structural transformation at more than $400 billion - or nearly 14% of the continent's projected GDP by 2030. The bank is aiming to raise $25 billion in its current replenishment round, which concludes in November. The last round, three years ago, raised $8.9 billion. LOST CASH Tah will have to either persuade the U.S. to reinstate the funding or seek to replace the lost cash elsewhere, either from other African members or wealthier countries outside the continent who want a bigger say in the bank's activities, such as Saudi Arabia, the United Arab Emirates or China, analysts said. Apart from constrained funding sources, the president-elect will also have to help heavily indebted African economies avert potential debt distress and meet historically high investment needs despite limited access to international funding. The AfDB is in the process of helping to set up a financial stability mechanism (AFSM) for the continent to prevent countries from tipping into debt-induced crises. "The AFSM directly responds to one of Africa's most pressing financial vulnerabilities, the rising burden of short-term, non-concessional debt that threatens economic stability across the continent," Makka said, adding that the continent's cost of capital is often 5 to 8 percentage points higher than that of developed countries. Tah will also help African nations steer through the turmoil caused by U.S. trade tariffs, volatility in the prices of commodities such as oil - a core revenue source for several countries - and risk aversion from some investors that could make it tough to keep money flowing into the continent. The lender on Tuesday cut this year's Africa growth forecast, citing the impact of tariffs.
TimesLIVE
29-04-2025
- Business
- TimesLIVE
Will Africa's financial stability fund rise to the debt challenge?
Angola will use its chairmanship of the African Union (AU) this year to advance the creation of a continental financial stability mechanism, its finance minister says, to cushion economies from sliding into a liquidity crisis due to external debt repayments. Here are some key aspects of the proposed African Financing Stability Mechanism (AFSM): Why are African leaders creating the AFSM? With public debt soaring 170% in the past 15 years to more than $1.8-trillion (R33.36-trillion), the 54-nation continent faces heightened external refinancing risks that could morph into a liquidity crisis. Debt repayments, which the African Development Bank (AfDB) estimates at $10bn (R185.32bn) annually between now and 2033, come as the region faces slower economic growth, exchange rate volatility and dwindling aid. Angola took over the rotating chairmanship of the AU in February, and finance minister Vera Daves de Sousa said on Friday the AFSM would be a priority to galvanise funds from regional institutions to deal with the debt burden. All this happens against the backdrop of US President Donald Trump's tariffs sparking market turmoil and a sell-off in risky assets, sending borrowing costs higher and potentially limiting market access for smaller, riskier economies — so-called frontier markets — many of which are in Africa. How will it work? The AfDB, the continent's multilateral development bank, will play a key role though it is unclear whether the mechanism will be hosted within the lender or as a separate entity. Next steps include establishing a legal treaty to govern the facility, African officials said. Modelled on the European Stability Mechanism (ESM), the AFSM is designed to save countries in the region about $20bn (R370.65bn )in debt servicing costs in the next 10 years, the AfDB estimates.
Zawya
29-04-2025
- Business
- Zawya
Will Africa's financial stability fund rise to the debt challenge?
Angola will use its chairmanship of the African Union this year to advance the creation of a continental financial stability mechanism, its finance minister said, to cushion economies from sliding into a liquidity crisis due to external debt repayments. Here are some key aspects of the proposed African Financing Stability Mechanism (AFSM): WHY ARE AFRICAN LEADERS CREATING THE AFSM? With public debt soaring 170% in the past 15 years to more than $1.8 trillion, the 54-nation continent faces heightened external refinancing risks that could morph into a liquidity crisis. Debt repayments, which the African Development Bank (AfDB) estimates at $10 billion annually between now and 2033, come as the region faces slower economic growth, exchange rate volatility and dwindling aid. Angola took over the rotating chairmanship of the African Union in February, and Finance Minister Vera Daves de Sousa said on Friday the AFSM would be a priority to galvanise funds from regional institutions to deal with the debt burden. All this happens against the backdrop of U.S. President Donald Trump's tariffs sparking market turmoil and a sell-off in risky assets, sending borrowing costs higher and potentially limiting market access for smaller, riskier economies -so-called frontier markets- many of which are in Africa. HOW WILL IT WORK? The AfDB, the continent's multilateral development bank, will play a key role though it is unclear whether the mechanism will be hosted within the lender or as a separate entity. Next steps include establishing a legal treaty to govern the facility, African officials said. Modelled on the European Stability Mechanism (ESM), the AFSM is designed to save countries in the region about $20 billion in debt servicing costs in the next 10 years, the AfDB estimates. It will exclusively focus on debt refinancing, backers said, avoiding roles assigned to other bodies like the International Monetary Fund, which also backstops countries facing balance of payments challenges. Once up and running, the AFSM will initially provide debt refinancing loans to members, before branching out to primary and secondary purchase of members' bonds. It will also weigh providing guarantees to members. WHAT WILL ITS CAPACITY BE? The AFSM hopes for an Aa/AA rating, and to attain it will likely offer 20% membership to non-African entities such as highly-rated foreign governments and multilateral development banks. No African country has a rating of Aa/AA. Under that scenario, the AFSM would need $3 billion in capital, split between debt and equity, to start operations, and then provide members with $5 billion for annual refinancing. Its capital would need to grow to $16 billion over the next decade to keep up with members' refinancing requirements, boosting its capacity to $30 billion. Member countries would pay $236 million in the first decade in annual instalments, backers of the initiative said. WHAT DOES IT MEAN FOR INVESTORS? There has been scepticism around the plan, mainly because many economies in the region, like Kenya and Angola, have already been struggling with external repayments, raising questions of their financial capacity to bankroll the AFSM. Senegal and Mozambique are also struggling with debt. But AFSM backers, including Angola's de Sousa, say the initiative can tackle debt challenges over the long term. Countries that tap the facility will have to carry out macroeconomic reforms designed to strengthen their economies in exchange for cash, the AfDB said. Supporters say the AFSM is not designed to provide bailouts to countries, but to prevent them from happening, while building a foundation for sustainable growth and development. (Reporting by Duncan Miriri; Additional reporting by Karin Strohecker in Washington DC; Editing by Aidan Lewis)
Reuters
29-04-2025
- Business
- Reuters
Will Africa's financial stability fund rise to the debt challenge?
NAIROBI, April 29 (Reuters) - Angola will use its chairmanship of the African Union this year to advance the creation of a continental financial stability mechanism, its finance minister said, to cushion economies from sliding into a liquidity crisis due to external debt repayments. Here are some key aspects of the proposed African Financing Stability Mechanism (AFSM): WHY ARE AFRICAN LEADERS CREATING THE AFSM? With public debt soaring 170% in the past 15 years to more than $1.8 trillion, the 54-nation continent faces heightened external refinancing risks that could morph into a liquidity crisis. Debt repayments, which the African Development Bank (AfDB) estimates at $10 billion annually between now and 2033, come as the region faces slower economic growth, exchange rate volatility and dwindling aid. Angola took over the rotating chairmanship of the African Union in February, and Finance Minister Vera Daves de Sousa said on Friday the AFSM would be a priority to galvanise funds from regional institutions to deal with the debt burden. All this happens against the backdrop of U.S. President Donald Trump's tariffs sparking market turmoil and a sell-off in risky assets, sending borrowing costs higher and potentially limiting market access for smaller, riskier economies -so-called frontier markets- many of which are in Africa. HOW WILL IT WORK? The AfDB, the continent's multilateral development bank, will play a key role though it is unclear whether the mechanism will be hosted within the lender or as a separate entity. Next steps include establishing a legal treaty to govern the facility, African officials said. Modelled on the European Stability Mechanism (ESM), the AFSM is designed to save countries in the region about $20 billion in debt servicing costs in the next 10 years, the AfDB estimates. It will exclusively focus on debt refinancing, backers said, avoiding roles assigned to other bodies like the International Monetary Fund, which also backstops countries facing balance of payments challenges. Once up and running, the AFSM will initially provide debt refinancing loans to members, before branching out to primary and secondary purchase of members' bonds. It will also weigh providing guarantees to members. WHAT WILL ITS CAPACITY BE? The AFSM hopes for an Aa/AA rating, and to attain it will likely offer 20% membership to non-African entities such as highly-rated foreign governments and multilateral development banks. No African country has a rating of Aa/AA. Under that scenario, the AFSM would need $3 billion in capital, split between debt and equity, to start operations, and then provide members with $5 billion for annual refinancing. Its capital would need to grow to $16 billion over the next decade to keep up with members' refinancing requirements, boosting its capacity to $30 billion. Member countries would pay $236 million in the first decade in annual instalments, backers of the initiative said. WHAT DOES IT MEAN FOR INVESTORS? There has been scepticism around the plan, mainly because many economies in the region, like Kenya and Angola, have already been struggling with external repayments, raising questions of their financial capacity to bankroll the AFSM. Senegal and Mozambique are also struggling with debt. But AFSM backers, including Angola's de Sousa, say the initiative can tackle debt challenges over the long term. Countries that tap the facility will have to carry out macroeconomic reforms designed to strengthen their economies in exchange for cash, the AfDB said. Supporters say the AFSM is not designed to provide bailouts to countries, but to prevent them from happening, while building a foundation for sustainable growth and development.
Reuters
18-02-2025
- Business
- Reuters
African leaders approve creation of $20 bln financial stability fund
ADDIS ABABA, Feb 18 (Reuters) - African leaders have approved the establishment of a $20 billion continental financial stability fund, the African Development Bank (AfDB) said, a move designed to stave off potential debt crises on the continent before they take hold. The facility, known as The African Financial Stability Mechanism (AFSM), will get its own credit rating to allow it to borrow on international capital markets, the AfDB, which will host the mechanism, said in a statement seen by Reuters on Tuesday. African leaders had called for the creation of the fund in February 2022 and mandated the AfDB to carry out preparations to set it up. The AfDB now intends to move quickly in drafting a formal agreement and securing ratification by states, it said in the statement following an African Union summit in the Ethiopian capital over the weekend. As well as soaring external commercial repayments and the risk of default, many economies in the region are also grappling with pressure for higher spending, sluggish government revenues, and the effects of climate change. Creation of the facility was also partly motivated by the fact that Africa lacks its own regional financial cushion, unlike Europe and Asia, which have arrangements of this kind. "If implemented as designed, the AFSM can save African sovereigns approximately $20 billion in debt servicing costs by 2035," Kevin Urama, an AfDB vice president and its chief economist, told Reuters. Membership will be voluntary and open to any African Union member country willing to participate. "Provision has (also) been made for at least 20% of non-African members provided the African states retain the majority of membership," the AfDB said. African nations face a range of debt pressures, the AfDB says. Some such as Kenya and Gabon have issued international Eurobonds in recent years and investors have at times questioned their ability to repay. These concerns led to a steep currency depreciation in Kenya in 2023, and a rating downgrade for Gabon by Fitch last week. The AFSM will lend money at "concessional" rates, the head of the AfDB told Reuters last month, and beneficiaries will commit to defined macroeconomic and fiscal reforms. "The core of AFSM's mandate is not to support the provision of bailouts to African states but to prevent them," said the AfDB.
