AfDB New Borrowing Policy to Strengthen Debt Sustainability in Low-Income Countries

The Board of Directors of the African Development Bank Group (www.AfDB.org) has approved a new policy that aims to strengthen debt sustainability among low-income African countries. The Board approved the Sustainable Borrowing Policy on 23 February 2022.

The new policy primarily targets recipients of the African Development Fund, the concessional window of the Bank Group. The Fund caters to low-income and transitional countries on the continent.

The Sustainable Borrowing Policy responds to a changing debt landscape in Africa, especially among the abovementioned countries. In recent years, low-income countries have gained access to new sources of finance, including private creditors and creditors outside the Paris Club. Although this access has allowed them to finance important development needs, it has also increased their public debt.

The Covid-19 pandemic has placed a further strain on government finances. The situation worsened due to unprecedented easing of fiscal and monetary policy adopted by countries to cushion the socioeconomic impacts of the pandemic.

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After the Covid-19 outbreak in 2020, governments announced fiscal stimulus packages ranging from about 0.02 percent of the gross domestic product in South Sudan to about 10.4 percent in South Africa, according to the 2021 African Economic Outlook. The African Development Bank estimates that African governments needed an additional 154 billion dollars in 2020 to tackle the crisis.

To address this dilemma, the Sustainable Borrowing Policy introduces two pillars to manage debt. The first pillar emphasizes debt management and transparency through agreed policy actions and technical assistance. A second pillar will rely on coordination and partnerships with other multilateral development banks, development partners, and lenders.

The Sustainable Borrowing Policy replaces the Non-Concessional Debt Accumulation Policy, adopted in 2008 and revised in 2011 to meet the operational needs of the African Development Bank Group and its regional member countries.

Over the last two years, the new policy has benefited from extensive internal and external consultations with regional member countries, civil society, and development partners, including multilateral development banks.