Africa's central banks demand global financial system overhaul

Central Bank of Kenya in Nairobi. [File, Standard]

African central bank governors are now calling for a significant overhaul of the international financial system, arguing the current architecture disadvantages developing countries, including Kenya.

Governor of the Bank of South Sudan Dr James Garang and Chairman of the East African Community Monetary Affairs Committee highlighted the issue of inadequate representation at the ongoing annual meetings of the International Monetary Fund (IMF) and the World Bank in Washington DC.

“Africa, despite being nearly 20 per cent of the global population, has historically lacked adequate voting power in institutions like the International Monetary Fund and World Bank,” said Dr Garang, who chairs the club of all EAC member state governors.

“This lack of representation translates into limited access to resources and higher borrowing costs for African countries,” he added.

The existing system also exacerbates debt challenges for African nations, said Dr Garang.

He pointed out that high-interest loans restrict funding for critical sectors like education and healthcare.

“UNCTAD (United Nations Conference on Trade and Development) data shows that developing countries face a 64 per cent increase in interest payments over the past decade, with Africa experiencing a staggering 132 per cent rise,” he said.

“These high-interest loans burden African nations, hindering spending on essential sectors like education and healthcare.” 

Central bank governors are now calling for reforms that address these issues. Proposals include debt restructuring by implementing a multilateral framework to streamline debt restructuring processes.

They are also calling for fair credit rating by creating a multilateral credit rating agency to provide a more balanced assessment of African economies and responsible lending by establishing lending criteria that eliminate harmful conditionalities and promote responsible borrowing.

The central bank bosses have also suggested climate financing by securing non-reimbursable financing for climate adaptation initiatives in developing countries.

Dr Garang emphasised the need for a comprehensive overhaul of the global financial system.

“The current system, with its skewed representation and burdensome debt, poses a significant threat to Africa’s development aspirations,” he said.

“Urgent reforms are necessary to create a more equitable and sustainable financial architecture.”

The African central bank governors previously made similar calls for reform at the 59th Annual Meetings of the African Development Bank Group and the African Development Fund in Nairobi in May this year.

The governors also met in Abuja, Nigeria, in August to discuss the issue of debt restructuring.

The IMF and World Bank recently took steps to increase their representation of Africa.

The World Bank, for instance, recently voted to change its internal lending guidelines, freeing up $30 billion (Sh3.9 trillion) in additional lending capacity over the next decade to help developing countries and emerging markets grapple with climate change and other global challenges, World Bank President Ajay Banga told Reuters.

The move, coupled with changes in the bank’s pricing policies, means the bank will be increasing its lending capacity by a total of $150 billion (Sh19.3 trillion) over the next seven to 10 years through adjustments to its balance sheet, Banga said.

Some experts estimate developing countries and emerging markets like Kenya will need at least $3 trillion (Sh389 trillion) in funding annually to address future pandemics, climate change and other challenges.

The board also approved changes in its fee structure to make it easier for borrowing countries to get loans and then make them cheaper to repay, including discounted pricing for short maturity, seven-year loans and extending IBRD’s lowest pricing to more vulnerable small states, the bank said in a statement.

IMF managing director Kristalina Georgieva said it was high time that Africa got its seat at the global financial and lending institution.

She said Sub-Saharan Africa has in the past been underrepresented in international organisations and there are plans to give the continent a bigger role in the governance of the IMF.

“On November 1, we [the IMF] will add one more board member from sub-Saharan Africa to our governing body and our Board of directors,” she said.