- African nations pay interest rates up to five times higher than the typical lending rates.
- Projections for 2024 show a net outflow of Sh9.8 trillion from IDA countries to donor nations, while net financial transfers to developing countries have plummeted.
Image: PCS
High-interest rates on external loans have caused African countries unsustainable sovereign debt, complicated refinancing and destabilized currencies, according to President William Ruto.
As a result, African nations pay interest rates up to five times higher than the typical lending rates.
"This year, the situation has worsened, developing countries are now net contributors to the global economy, contrary to expectations of receiving net inflows," Ruto said.
"Projections for 2024 show a net outflow of $74 billion (Sh9.8 trillion) from IDA countries to donor nations, while net financial transfers to developing countries have plummeted from $225 billion (Sh30 trillion) in 2014, to a low of $51 billion (Sh6.8 trillion) in 2022."
He was speaking during opening of the International Development Association (IDA 21) summit on Monday in Nairobi.
He noted that the costly borrowing makes sustainable growth elusive for African nations as more funds is allocated to debt service than to crucial sectors like education, health and social protection.
"This financial strain was prevalent in two-thirds of African countries even before the pandemic struck. Notably, in 2020, one in every four Sub-Saharan African countries dedicated over 17 per cent of its public revenue solely to interest payments," Ruto added.
The IMF reports also reveal that that Sub-Saharan Africa's ratio of interest payments to revenue has more than doubled in a decade, reaching nearly four times that of advanced economies by the end of 2022.
As a result, over half of IDA recipients face debt distress or are at high risk.
Its on this basis that President Ruto commended and rooted for concessional type of loaning such as one offered by IDA.
He said the facility has remained to be the most dependable source of patient capital for African countries, with every dollar of donor financing enabling an additional $3.5 in capital market leverage to amplify development impacts.
He thus called for further capital injection into the facility to support the emerging economies.
This is concurred by the G20 Independent Expert Group which recommends tripling IDA's financing capacity to $279 billion (Sh37.2 trillion) by 2030, while maintaining the essential concessional nature of its financing.
As a cornerstone of financing for Africa, IDA has directed 75 per cent of its total commitments, nearly $26 billion (Sh3.5 trillion) to Africa in the last fiscal year, with African nations comprising eight of IDA's top ten borrowers.
IDA stands out for its rapid and decisive action during crises, distinguishing itself from other funding sources.
Its demand-driven programs, combined with concessional loans of 40 to 50 years, empower borrowing nations to pursue sustainable, long-term development strategies.