EXCERPT: Edun and Cardoso are championing initiatives to ease debt burdens and foster financial integration across Africa.
The Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, and the Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, on Saturday mobilised their counterparts from the African Union (AU) to work towards the establishment of the African Monetary Institute (AMI) as well as the operationalisation of the African Financing Stability Mechanism (AFSM) – two key initiatives they believed have the potential to cure the continent from existing debt and payment system challenges.
The proposed AFSM framework seeks to provide debt refinancing loans at favourable terms and help alleviate the debt burden and fiscal challenges including financial instability that African countries face.
On the other hand, the AMI is a landmark institution that will serve as the cornerstone of Africa’s financial and economic integration, especially in the realisation of the single currency project, which had eluded the monetary authorities in recent years.
Both Edun and Cardoso made the remarks on Saturday at the fifth African Union Extraordinary Session of the Specialised Technical Committee (STC) on Finance, Monetary Affairs, Economic Planning and Integration in Abuja.
This is coming as it has also emerged that the continent is expected to spend about $74 billion in refinancing debt in 2024.
The CBN governor said the AMI would mark a significant milestone in Africa’s journey toward a common currency, while the AFSM represented a proactive approach to safeguarding financial stability in an increasingly uncertain global economic landscape.
This is as the United Nations Economic Commission for Africa (UNECA) revealed that about $5 billion is lost annually to inefficient payment systems that depend on Foreign Exchange (FX) rates, further hindering African intercontinental trade because of high transaction costs.
Also, the African Development Bank (AfDB) Group said African countries currently pay over 500 per cent in interest costs when borrowing from the international capital markets than they would pay if they borrowed from Multilateral Development Banks (MDBs).
Cardoso, however, pointed out that in alignment with efforts to build a stronger and more resilient African financial architecture, the CBN had implemented significant reforms aimed at fostering stability, resilience, and growth.
The central bank governor stated that these measures further underscored the country’s commitment to building robust financial systems and aligning with regional aspirations under the Abuja Treaty and Agenda 2063.
On his part, Edun, who was represented by the ministry’s Director, Special Projects, Aisha Umar, pointed out that the African economy had experienced significant challenges, including poverty and inequality, dependence on aid, global competitiveness, periodic debt crisis, climate change, among others in the past few years.
He said debt refinancing remained high while access to liquidity was at a high cost with limited access to capital markets for emerging markets.
Edun said Africa’s public debt had increased significantly over the years, becoming more non-conceptual and short-term, adding that debt service was higher with increased financing risks.
He said: “As you must have noticed since 2011, the average maturity of Africa’s external debt has fallen from close to 23 years to around 17 years in 2022.”
The minister also praised the formidable teams of experts who have harmonised all the divergent views and interests into a single document. He said: “I, therefore, urge you, my brothers and sisters, ministers and governors, to in the same spirit move to the next level by inviting our political leaders to endorse these resolutions in their next Assemblies of Heads of Government in February 2025.
“We have reiterated, interrogated, argued, harmonised and offered very useful suggestions, many of which will be articulated pre-authorisation that Africans that we are, the time to begin to act is now. The entire world is watching.”
In her remarks at the meeting, Deputy Executive Secretary/Chief Economist of the United Nations Economic Commission for Africa (UNECA), Dr. Hanan Morsy, disclosed that about $5 billion was lost annually to inefficient payment systems that depend on Foreign Exchange (FX) rates.
Morsy said it further hindered the African intercontinental trade because of high transaction costs, adding that both AMI and AFSM could become the enablers of transformation if well supported by the various African governments.
She said a single African currency supported by a robust monetary policy framework will cut transaction costs, and accelerate trade, allowing African businesses to compete and thrive.
Morsy added that the continent’s ability to mobilise domestic and international investments depended on financial stability and predictability.
She said: “Therefore, a common currency mechanism and instruments like the Africa Financial Stability Mechanism will position Africa as an attractive investment destination, particularly in sectors that can drive sustainable growth like infrastructure, energy and manufacturing.
“Of course, none of this will be easy. We know that. The road will be long and there will be challenges. Our nations are diverse in terms of economies, policies and conditions, which requires a phased, pragmatic approach to integration. It requires that we make sure that the measures we take are well-designed and well-structured and have strong buy-in from member states.”
However, Chief Economist/Vice President for Economic Governance and Knowledge Management, African Development Bank (AfDB) Group, Prof. Kelvin Urama, said Africa currently pays over 500 per cent in interest costs when borrowing from the international capital markets than if they borrowed from Multilateral Development Banks (MDBs).
Urama noted that while debt sustainability and risk of debt default were increasing, the short-term, high-cost nature of the types of debt currently available to Africa was creating debt sustainability challenges.
He said, “And this year alone, the continent is expected to spend about $74 billion in refinancing debt.”
He said approval of the AMI statutes and AFSM technical and operationalisation report was particularly critical to building economic resilience and accelerating the continent’s development.
Urama said Africa’s public debt had surged by 170 per cent since 2010 due to structural issues in the global debt architecture, recent global and domestic shocks, and also weaknesses in our own macroeconomic fundamentals, which need attention.
He said most of these debts have been contracted during periods of low-interest rate regimes in the global market, noting that these had changed and are likely to remain high for the near future.
James Emejo
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