The African Development Bank (AfDB) has approved a policy that will strengthen and bring transparency to debt management among low-income countries.
The board of the pan-African lender approved the Sustainable Borrowing Policy which targets recipients of the African Development Fund, the concessional window of AfDB Group.
The Fund caters to low-income and transitional countries on the continent.
According to AfDB, the policy responds to a changing debt landscape in Africa, especially among the low-income 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,” said AfDB.
The lender says 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, AfDB added.
“After the Covid-19 outbreak in 2020, governments announced fiscal stimulus packages ranging from about 0.02% of gross domestic product in South Sudan to about 10.4% in South Africa, according to the 2021 African Economic Outlook. The African Development Bank estimates that African governments needed an additional $154 billion in 2020 to tackle the crisis,” said the bank.
The policy will also rely on coordination and partnerships with other multilateral development banks, development partners and lenders to ensure debt sustainability in the countries.
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.