Africa has made progress in financing its development through domestic resources in recent years. However, this funding is inadequate to close a widening financing gap. Reform is needed to tackle the climate crisis and prioritise sustainable development, while building a prosperous and inclusive Africa requires strong partnerships across the public and private sector.
The current global financial architecture faces big challenges in addressing the financial needs for climate action, sustainable development and debt management. The calls for reform are growing louder, seeking to create a more equitable, inclusive and sustainable financial system.
Increasing the representation of developing countries — particularly African nations — in global economic decision-making processes is crucial for the continent’s development and prosperity. We therefore commend the International Monetary Fund (IMF) for creating a third chair (board membership) for Sub-Saharan Africa to improve its voice and representation on the world stage.
Climate change is one of the most pressing issues of our time, with far-reaching consequences for all of us. Addressing climate action requires a multifaceted approach involving many stakeholders.
We need to build a prosperous, inclusive and resilient Africa through renewed partnerships and strong institutions. However, a troubling trend has emerged: governments worldwide are grappling with mounting public debt, limiting their ability to invest in social services citizens desperately need.
Alarmingly, nearly 40% of African countries are in, or at high risk of, debt distress. To make matters worse, 60% of African nations now spend more on servicing external public debt than health care
The average public debt in Africa is 65% of GDP, amounting to $1.1-trillion (about R19.39-trillion), with some countries having much higher levels. Alarmingly, nearly 40% of African countries are in, or at high risk of, debt distress. To make matters worse, 60% now spend more on servicing external public debt than health care.
The existing global debt architecture is ill-equipped to address the pressing needs of African countries. Urgent reforms to the G20 common framework are required to make it more effective, transparent and fit for purpose. Furthermore, we appeal for the suspension of debt service for all countries entering common framework restructurings and a comprehensive review of the IMF-World Bank debt sustainability analysis framework to prioritise solvency over mere liquidity.
The path ahead is not without its challenges. Achieving the sustainable development goals by 2030 will require an estimated $1.3-trillion a year, while the costs of addressing climate change alone are projected to reach $2.8-trillion by 2030 in Africa. Sadly, even as these financing needs grow, official development assistance to Africa declined by 3.5% in 2022, while borrowing costs have soared.
While in recent years Africa has made progress in financing its development through domestic resources, this funding is not enough. To bridge the funding gap, African countries need to boost domestic resource mobilisation by increasing financial resources, improving public spending efficiency, leveraging large pension fund markets and sovereign wealth funds, curbing illicit financial flows from the continent, and harnessing partnerships. New sources of tax revenue should also be sought.
Africa must explore innovative solutions and leverage the ongoing financing for development processes to secure adequate financial and technical resources to support Africa’s participation and engagement in the tax reform process.
Deepening Africa’s capital markets for resource mobilisation will enable countries to source additional financial resources from the private sector and the pension fund industry. The use of public-private partnerships will also allow African countries to finance critical infrastructure projects with resources from the private sector.
By leveraging carbon credits, countries can unlock benefits supporting sustainable development, economic growth and climate resilience, all the while contributing to global efforts to combat climate change.
Africa’s huge diaspora community enables various countries to issue diaspora bonds and related instruments to raise additional funding. Sovereign wealth funds have also proved to be a critical economic pillar in driving economic development in some countries.
Scaling up resources from international financial institutions is vital for African countries to address economic challenges. These resources should be more concessionary, long-term and inclusive.
Affordable finance is crucial for sustainable development, and strengthening multilateral development banks is essential to increasing lending capacity and supporting development projects.
Furthermore, innovative financing tools and mechanisms can help reduce financing costs, making it easier for countries to access affordable finance for development.
Debt swaps can be valuable for managing debt and alleviating financial stress. By exchanging debt for new obligations with more favourable terms, countries can manage debt more effectively.
Alongside debt relief, African nations are also calling for support in developing tools to lower extreme financing costs. The recent UN General Assembly resolution emphasises the need for a UN framework convention on international tax co-operation, which is a step in the right direction. Action is needed to achieve results from the UN framework convention on international taxation to establish a globally fair and just tax system.
African countries should begin implementing the domestic minimum top-up tax (DMTT) to ensure multinational companies contribute their fair share of taxes in Africa and minimise transfer pricing leakages. For example, Zimbabwe and South Africa have begun implementing the DMTT provision, which will ensure multinational corporations pay at least 15% of corporate tax.
• Prof Ncube is Zimbabwe’s minister of finance, economic development & investment promotion
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.