Hannah Ryder, CEO of the independent consultancy Development Reimagined, advocates for sustainable and long-term financing to boost African infrastructure and promote global economic development. In an exclusive interview for the G20 Brasil website, Ryder highlighted the importance of a bold collective approach to address the continent's debt crisis.
The African Union, the latest full member of the G20, introduces critical regional considerations for the world's largest economies to address in their short- and medium-term economic development strategies. In an exclusive interview for the G20 Brasil website, Kenyan economist Hannah Ryder, CEO of Development Reimagined, underscored the pressing need for innovative approaches to address the African debt crisis.
With decades of experience in development policies and international collaborations, particularly involving China and African countries, Ryder emphasizes the necessity of sustainable, long-term financing. This approach aims to empower African countries to invest in infrastructure and stimulate economic growth.
Proposals such as establishing a debtor's club and expanding International Monetary Fund (IMF) quotas are presented as viable solutions. Ryder also underscores the significance of reforming debt sustainability to facilitate access to affordable financing tailored to each country's economic circumstances. Brasil's leadership within the G20, particularly with the African Union's full participation, presents an unprecedented opportunity to enact measures that promote development across the continent, benefiting all countries.
Ryder participated as a guest at the International Financial Architecture meeting in Fortaleza, Ceará, in June. Read more about the economist's thoughts and proposals below.
Addressing African External Debt: Potential Solutions
Africa's current debt-to-Gross Domestic Product (GDP) ratio mirrors the 1980s, accounting for approximately 10% of the world's total external debt. Managing this debt poses challenges for many African countries, primarily due to immediate payment obligations. Extending repayment periods is critical. Many countries require increased debt, especially infrastructure investments, to spur economic growth.
Addressing these pressing issues and proposing solutions is crucial at this time. As a representative of Development Reimagined, I advocate for potential solutions for the G20's consideration. One proposal is establishing a debtor's club, where members collaborate to pool resources and collateral to secure more affordable and concessional financing.
Another proposed solution is to double IMF quotas for African countries. This would give them greater access to liquidity financing during external challenges. A third idea involves reforming our approach to debt sustainability, as current methods often create barriers that hinder countries from accessing affordable financing.
We look forward to the G20 advancing these ideas under Brasil's leadership. The world's largest economies must acknowledge the advantages of extending new loans. The G20 can be pivotal in facilitating access to affordable, long-term resources needed to bridge substantial gaps, particularly in financing and infrastructure. Given Africa's vast size, countries must allocate a significant portion of their GDP to infrastructure development. Recognizing that these efforts will yield global benefits is essential.
The African continent boasts the world's youngest population and abundant natural resources. Enhancing production, logistics, and infrastructure in Africa will yield global benefits. The G20 can contribute to this effort by increasing long-term concessional financing.
I advocate for potential solutions for the G20's consideration. One proposal is establishing a debtor's club, where members collaborate to pool resources and collateral to secure more affordable and concessional financing.
Another proposed solution is to double IMF quotas for African countries. This would give them greater access to liquidity financing during external challenges. A third idea involves reforming our approach to debt sustainability, as current methods often create barriers that hinder countries from accessing affordable financing.
G20 and Debt Negotiations
The Brazilian G20 presidency is historic as it includes the African Union as a full member for the first time, representing all nations on the continent and offering new perspectives. Addressing these issues is crucial. I view the G20 as akin to the UN Security Council, but specifically on economic and financial affairs.
The G20 has substantial economic influence and the capacity to address these issues comprehensively. With all necessary tools at their disposal, the pivotal question remains: Will they deploy them effectively? This underscores the significance of the presidency. It compels other G20 members to think innovatively and effect change. Individuals like myself are dedicated to contributing to this effort whenever possible, and we value the opportunity.
The Brazilian G20 presidency is historic as it includes the African Union as a full member for the first time, representing all nations on the continent and offering new perspectives. Addressing these issues is crucial. I view the G20 as akin to the UN Security Council, but specifically on economic and financial affairs.
Reforming Multilateral Development Banks (MDBs)
Consider the multilateral development system's impact on African countries as a specific example. Low-income countries aspiring to transition to middle-income status by 2025 or 2030 can access affordable concessional financing only up to a certain threshold through the World Bank's International Development Association (IDA). Upon reaching a per capita GDP that qualifies them as middle-income, they graduate, requiring them to secure more costly financing. This dynamic creates a disincentive for countries to progress and underscores the urgent need for reform.
While it may appear technical or complex to address, it is essential to approach the system from the borrower's perspective and ask: how can we rectify these unintended consequences that deter countries from rightfully declaring themselves middle-income? Finding solutions to these issues is critical.
Reforming the International Lending System
The international financial system requires extensive reforms to shift its focus from creditor-centric to borrower-friendly, prioritizing those striving to achieve the Sustainable Development Goals. Numerous opportunities exist, with a key focus on enhancing collaboration among borrowers.
We drew inspiration from the concept of the Grameen Bank, known in development circles since the 1970s. Villagers collaborated because individual access to financing was limited. They secured funds to launch new businesses by pooling their finances and resources. We aim to elevate this approach to the sovereign level, enabling countries to embrace this form of macroeconomic microfinance.
Such a project could enable the multilateral development system to provide significantly more concessional, long-term financing tailored to the needs of developing countries. We are optimistic that many multilateral development banks will embrace and begin implementing this idea.
Causes of Rising Debt in African Countries
The primary driver behind rising debt levels in African countries is the necessity to meet sustainable development needs, such as infrastructure projects like new railways and roads and investments in education and healthcare. Many African nations have recently encountered higher interest rates and significant currency challenges, resulting in escalated expenditures.
Unexpected challenges and systemic shocks significantly affect African countries and others globally. On the African continent, our reliance on global markets to purchase our products or resources adds vulnerability, often leading to increased debt. It is crucial to enhance the flow of affordable financing to develop infrastructure that enables us to produce these goods domestically, reducing dependence on external sources.
While it may appear technical or complex to address, it is essential to approach the system from the borrower's perspective and ask: how can we rectify these unintended consequences that deter countries from rightfully declaring themselves middle-income? Finding solutions to these issues is critical.
Developing Domestic Financing and Consumption Markets in the Global South
Many countries are developing domestic debt markets where pension funds or large investors issue debt to finance government projects. However, these markets often mirror external market conditions. High borrowing costs internationally can lead to elevated domestic interest rates, creating constraints within the market.
We need to address both external and domestic challenges simultaneously and collaboratively. Many African countries are attempting to mobilize as many domestic resources as possible. One of the main challenges they encounter in securing financing for private sector development is the "Africa risk premium."
Numerous studies show a risk burden associated with African countries, leading to higher interest rates and shorter debt repayment periods due to perceived high risk. Contrary to this perception, data shows that African countries are not poor debtors; rather, they are committed to ensuring timely repayment.
We are actively implementing measures to mitigate the "Africa risk premium" through engagement with international financial institutions and credit rating agencies. However, ongoing efforts are necessary to urge these organizations to rectify biases in their analyses and the origins of their perspectives.
