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What Did the Paris Summit Deliver for Africa and What’s Next?
Africa continues to face daunting challenges arising notably from high indebtedness, inflationary pressures, financing shortages, climate change, stagflation, and geopolitical tensions. Although the continent contributes the least to CO2 emissions, the Loss and Damage Collaboration estimates that 97% of people affected by extreme events live in developing countries, with the majority of them being in Africa.[1] Based on the IMF/World Bank debt sustainability analyses, almost half of sub-Saharan African countries are over-indebted or at high risk of debt distress. At the same time, soaring food and fuel prices threaten the region’s economic and social stability. According to the World Bank[DS1] [2], the countries most affected by food price inflation are in Africa, with many of them registering double-digit levels of inflation.
This year’s economic growth in Sub-Saharan Africa is estimated at 3.6% by the IMF, against 3.8% in 2022.
In addition, Africa is poised to be one of the biggest losers in the growing tensions amid great power competition. In sub-Saharan African countries, a recent IMF study suggests that increased tensions between China and the West could cause a permanent decline in the gross domestic product of up to 4% over ten years, corresponding to losses greater than those suffered during the 2008 global financial crisis.
Data source: Global Debt Database, IMF, Last Update: December 08, 2022.
It was against this very particular international backdrop that French President Emmanuel Macron hosted the Paris summit on June 22 and 23, under the theme of “A New Global Deal for Financing”. Among other things, the summit follows on from the Bridgetown Initiative, which aims to facilitate access to increased external financing for climate action in countries most vulnerable to climate change. Beyond the climate question, the summit also aimed at other global challenges, including access to healthcare and the fight against poverty, while forging a consensus at the highest level on how to advance several reforms that are on the doorstep of multilateral development organizations and institutions such as the G20, the IMF, the World Bank, and the United Nations.
There is a growing consensus about the fact that international financial institutions are currently under-utilized even though some of them, with combined assets of over $1,800 billion, have the potential to mobilize hundreds of billions in new loans simply by using their resources more efficiently. The MDBs are also criticized for their red tape and long lending times (465 days on average for the World Bank) and their inability to sufficiently finance the energy transition.
However, instead of being a demonstration of global unity in favor of reforming the international financial architecture, some observers felt that the Paris Summit highlighted the gap between the needs of the South and what the North is prepared to concede. Beyond the announcement by certain countries and institutions of new initiatives and promises, the summit failed to secure an ambitious roadmap for the reform the international financial architecture, as had been so much hoped for by the countries of the South.
The focus on private finance solutions is expected to increase the financialization of development and climate action. Still, it is not likely to bring about the long-awaited qualitative change in the way the multilateral financial architecture operates. Indeed, private finance is generally not very enthusiastic about investments that do not guarantee considerable returns.
Nor has there been much progress on how to deal with the debt problems of developing countries. The common framework put in place by the G20 showed the shortcomings and lack of coordination and willingness on the part of some creditors, such as China. Zambia was only able to reach an agreement with creditors two and a half years after defaulting on an agreement that does not even stipulate full debt cancellation.
Finally, behind the World Bank’s announcement of climate resilience loans entitled “climate resilience debt clauses” lurks a real lack of commitment to financing loss and damage and to solutions to the debt crisis. While these clauses may be positive for countries facing climate shocks in the future, they do nothing to solve the debt crisis today, as they only apply to future loans.
Now that the summit is over, it’s time to focus on the other summits to come, and hope that these will decisively deliver the support needed by the developing countries that are bearing the brunt of current overlapping crises. Upcoming major summits such as the UN General Assembly in September, the SDG summit, UNFCCC COP28 in December, and the ongoing UN FfD (Financing for Development) process, with a new Financing for Development conference probably in 2025, represent unique opportunities to promote genuine transformation based on democratic and equitable discussions, with all countries around the table on one foot to find concrete and definitive solutions to the woes of developing countries.
References:
https://www.imf.org/external/datamapper/datasets/GDD
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