Africa’s development financing needs are rising, but the global financial architecture is not appropriately structured to deliver the required support. First, it is not delivering the scale of resources needed to bridge the financing gap of $1.2 trillion for financing the SDGs through 2030. Second, it makes orderly debt restructuring complex to achieve, as debt restructuring is disorderly, protracted, and costly, which poses serious risks for African countries facing debt distress.

Third, despite Africa’s high liquidity needs for debt refinancing, estimated at $10-billion per year on average between 2024 and 2033, the existing international financial architecture is inadequate to provide affordable liquidity at the scale needed to meet those needs. Africa remains the only continent without a Regional Financial Arrangement tailored to its specific needs and challenges.

As a result, the cost of access to liquidity is high, standing at an average yield of 15% in 2023 for a 10-year Eurobond compared to 7% in 2019. In addition, African sovereigns pay a higher premium to access liquidity in the bond market compared to comparatively rated sovereigns of other continents. Consequently, many African countries faced with debt refinancing obligations, have recently resorted to Eurobonds at much higher rates to bridge their financing gaps, increasing their financial burdens.

Debt vulnerabilities are therefore rising with the number of African countries at high risk or in debt distress jumping from 13 in 2010 to 21 in 2024. Africa therefore needs a regional safety net to provide affordable debt refinancing liquidity at scale.

Report by the African Development Bank Group