AfDB approves lending policy to strengthen their credit stability

This new policy primarily targets beneficiaries of the African Development Fund, the bank group’s concessional lending window.

The Board of Directors of the African Development Bank Group has approved a new policy aimed at strengthening the debt stability of low-income African countries. It gave its assent to the Sustainable Lending Policy on February 23, 2022.

This new policy primarily targets beneficiaries of the African Development Fund, the bank group’s concessional lending window. The African Development Fund targets low-income and transition countries on the continent.

The Sustainable Borrowing Policy responds to the changing overall debt situation in Africa, particularly in the countries mentioned above. In recent years, low-income countries have been able to access new sources of financing, including private creditors and non-Paris Club creditors. While this access has allowed them to finance critical development needs, it has also increased their public debt.
The COVID-19 pandemic has put a heavy burden on public finances. The situation has worsened due to unprecedented easing of fiscal and monetary policy adopted by countries to mitigate the socio-economic effects of the pandemic.

According to the 2021 edition of the African Economic Outlook, governments announced fiscal stimulus packages following the outbreak of covid-19 to about 0.02% of GDP in South Sudan in 2020 to about 10.4% of GDP in South Africa. The African Development Bank estimated that in 2020, African governments needed an additional $154 billion to deal with the crisis.

To address this dilemma, the Perpetual Lending Policy introduces two essential elements to the management of debt. The first emphasizes debt management and transparency through agreed policy measures and technical support. The second element will depend on coordination and partnership with other multilateral development banks, development partners and donors.
The Sustainable Borrowing Policy replaces the Non-Concessional Debt Accumulation Policy, which was 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 past two years, the new policy has been the subject of extensive internal and external consultations with development partners, including regional member states, civil society and multilateral development banks.

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