African leaders have approved the establishment of a $20 billion continental financial stability fund aimed at preventing potential debt crises across the region. The African Financial Stability Mechanism (AFSM), which will be hosted by the African Development Bank (AfDB), is designed to help countries manage external debt pressures, slow economic growth, and the effects of climate change.
The new fund will be credit-rated to allow it to borrow on international capital markets. African leaders first called for the creation of the fund in February 2022, and the AfDB is now working on drafting a formal agreement and securing ratification by member states.
The AFSM is expected to save African nations approximately $20 billion in debt servicing costs by 2035, according to AfDB Vice President Kevin Urama. Membership will be voluntary and open to any African Union member country, with provisions for at least 20% non-African membership, ensuring African countries retain the majority.
The fund is designed to lend money at concessional rates, but beneficiaries must commit to specific macroeconomic and fiscal reforms. Unlike bailout programs, the AFSM aims to prevent financial crises before they occur, helping to avoid defaults and currency depreciation.
Several African nations, such as Kenya and Gabon, have faced debt pressures in recent years, with concerns about their ability to repay international Eurobonds. This new financial mechanism seeks to address these challenges and provide a regional safety net similar to those in Europe and Asia.
