Africa’s rising financial and climate challenges, with several countries facing debt distress and climate vulnerabilities, are a major concern, says Hanan Morsy, deputy executive secretary of the UN Economic Commission for Africa.
Since 2022, the ECA has been coordinating the African High-Level Working Group on the Global Financial Architecture, bringing together finance, planning and economic development Ministers alongside the African Union, African Development Bank, African Export-Import Bank, World Bank Group, and the International Monetary Fund.
The working group serves as a platform aimed at building consensus among African policymakers on key proposals for reforming the global financial architecture to reflect the changed times.
“African countries spend between 5-15% of their GDP a year to handle climate impacts. This severely affects Africa’s ability to tackle [strategic] climate action,” says Morsy.
She says the aftermath of the pandemic, the war in Ukraine and climate shocks have had a significant impact on African economies, which means that the continent will need to enhance expenditure efficiency and prioritise on investments with higher yielding returns.
“The resources to mitigate the impacts of these shocks and the cost of financing are increasingly unaffordable. Some of the key things that are needed include improving the terms of lending that Africa faces, lowering the cost of financing and extending maturities,” she elaborates.
Morsy, who doubles as the chief economist of ECA, cites the Sustainable Debt Coalition championed by Egypt to boost sustainable climate-smart growth through innovative financing tools as one of the ways the continent is pursuing green financing.
“Countries need to look at the new things they could do to enable action, [such as] increasing domestic resource mobilisation, enhancing the integrity of carbon markets, and developing value chains in a more sustainable way to benefit a variety of the issues we are dealing with,” Morsy says.
Reflecting on the ECA-led working group, she says: “We have several tasks that have been articulated through ministerial statement in terms of priorities and are derived from what the continent is going through, including the series of global shocks and increasing socioeconomic pressures and high inflation.”
Morsy says the 2023-2024 period presents a critical moment for the world to accelerate reform efforts as advocated by the continent, and aligned to proposals by UN secretary-general António Guterres on restructuring the international financial architecture.
“The key issue for Africa is the cost of reborrowing. Even when interest rates were historically low following the easing of the global financial crisis, African countries benefited but still paid substantially higher rates than other countries with similar economic conditions.
“That in itself affects African countries negatively. Currently African countries use 22% of their revenues on average to service their debts, which means diverting resources from social, health and education sectors to debt servicing. We need to make sure that the borrowing cost of financing is affordable,” she argues.
Reforming the financial system
Morsy, who grew up in Cairo, Egypt, and whose hobby is snorkelling, has been at the centre of international development finance planning for decades. She has gained considerable experience as a research director at the African Development Bank, lead economist in charge of the Middle East and North Africa region with the European Bank for Reconstruction and Development, and as senior economist at the International Monetary Fund.
In our discussion, she acknowledges the progress made towards reforming the global financial system, such as the establishment of the resilience and sustainability trust fund.
She notes that discussions are still ongoing on support for countries facing debt distress, as well as on attracting affordable, blended, innovative green and blue financing mechanisms to support Africa’s climate goals.
Acknowledging that the envisaged reforms are challenging, Morsy calls for more inclusion accompanied by action.
“The series of global shocks have set back the continent at least two decades. This increases the scale of the challenge but doesn’t make it impossible. We need countries to act because the cost of inaction is high.”
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