Finance and African development – dynamics and underlying debt risks

This policy brief looks at the Least Developed Countries—32 African countries classified by the UN as LDCs, whereas the rest are classified as either Lower Middle-Income Countries or Middle-Income Countries. It looks at the Gradual graduation from Least Developed Country (LDC) category as being constrained by lower incomes, social and health challenges, and limited finances for sustained development. Adequate supply of infrastructure services has long been viewed as a key ingredient for economic development and driver of growth and productivity. In pursuit for transparent inclusivity and graduation from the LDC status, many African countries need significant financing to close the development and infrastructure gaps, meet the SDGs, etc. Sustainable financing is a necessary ingredient needed to close the development and infrastructure gaps, address SDGs and sustained demographic dividends. Until the late 1990s, most African countries financed their development through domestic resource mobilization and external concessional loans, the latter from the Paris Club and IFIs. Southern Africa ranked top in both FDI inflows and outflows between 2000 and 2020. External debt service capacity constraints landed most African countries into the HIPC process. The outlook for Africa’s debt sustainability is challenged by emerging risks and vulnerabilities. Strengthening the links between debt financing and growth returns would play an important role in ensuring sustainable development with debt sustainability on the continent. READ MORE…