By John Ikani
African leaders at a major economic gathering in Kenya this week highlighted the urgent need for reforms in the international financial system, which they consider “unjust” due to the high borrowing rates it imposes on African nations.
The call comes amidst struggles with mounting debt burdens and volatile exchange rates that hinder development efforts.
The African Development Bank (AfDB) forecasts a respectable continental economic growth of 3.7% for 2024, considering the global climate.
However, Kenyan President William Ruto emphasized at the AfDB’s annual meeting in Nairobi that achieving “Africa’s transformation” – the event’s central theme – requires significant financial resources for governments across the continent.
“A rigid barrier exists,” Ruto stated, referring to the global financial architecture’s misalignment with African aspirations.
He criticized the system as “unjust,” forcing African countries to borrow on capital markets at exorbitant rates, “often eight to ten times higher” than what other nations pay.
The criticism stems from recent experiences. Kenya, a regional economic powerhouse, managed to secure $1.5 billion through a new Eurobond in February, but at a steep interest rate of around 10%.
In stark contrast, French government bonds with a 10-year maturity currently yield a mere 3%.
AfDB President Akinwumi Adesina, a Nigerian economist, echoed these concerns. He condemned the “so-called Africa risk premium” that compels African nations to pay significantly higher borrowing rates compared to countries with similar credit ratings.
Adesina, citing a UN Development Programme report, stated that a proper and fair risk assessment for Africa could result in annual debt service savings of a staggering $75 billion.
Despite facing numerous “headwinds,” Adesina projected Africa’s real Gross Domestic Product (GDP) to grow by 3.7% in 2024 and 4.3% in 2025, following a 3.1% increase in 2023.
However, President Ruto, leading the charge for reform within the global financial system, cautioned that “the pace of African development remains far behind its undeniable potential.”
