In an environment of elevated debt vulnerabilities exacerbated by increased fiscal exposure to the pandemic, extreme weather events and rising food and energy prices, improving
Concessionary financing from multilateral and bilateral sources remains the dominant source of
Furthermore, the scope of concessionary financing is too narrowly focused on low-income countries to serve the needs of most African countries. With 42 percent (or 23 countries) of African countries classified as low-middle income, the number of countries eligible for concessionary financing is fast declining in the backdrop of escalating financing needs.
Rising financing needs, inadequate concessional financing and declining eligibility for such resources have compelled several countries to access capital markets to close their development financing gaps.
But this has come at a cost. It is estimated that the continent's interest payments on their Eurobond issuances are 100 to 260 basis points higher than countries with similar economic fundamentals and risk profiles. With almost one half of African countries exposed to private capital markets this premium is significant and weighs heavily on their debt service obligations.
The Liquidity and Sustainability Facility established in 2021 by the ECA, in collaboration with Afreximbank,
Collectively,
Elaborating on the significance of the LSF, Brian Ruane, CEO of Clearance & Collateral Management at BNY Mellon, stressed that the facility will address the gap in market infrastructure for financing
Recognizing the potential for the LSF to catalyze green growth in
Notwithstanding the continent's vast green resource endowments and rising demand for green bonds,
The LSF can incentivize green bond issuances by offering preferred repurchase agreement rates to institutional investors that refinance their positions using African green bonds as collateral. As such, the LSF can mobilize capital investment towards key sustainable efforts and trigger green and sustainable recovery for
The LSF is a bold solution to
*The Chief of Section, Development Planning, Macroeconomic & Governance Division (MGD),
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