29-04-2025
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.
