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The Financial System Africa Needs

Africa’s vast economic potential is no secret. But tapping it will be possible only if major developed countries and emerging economies work together to design a more inclusive and effective global financial system that meets the continent’s liquidity and debt-sustainability needs.

ADDIS ABABA – For African economies that have yet to recover from the COVID-19 pandemic, Russia’s war in Ukraine could not have come at a worse time. The economic wounds of the previous crisis had been stitched up, but more time was needed for them to heal, let alone for the scars to fade. Now, commodity-price spikes and supply-chain disruptions are compounding inflationary pressures, causing currencies to depreciate and food and fuel costs to skyrocket. Since the war began, oil prices have reached their highest levels since 2008, wheat prices have soared to 14-year highs, and fertilizer prices have surged by nearly 30%.

These macro trends have high human costs. As many as 25 African countries depend on wheat imports from Russia and Ukraine. Rwanda and Tanzania import over 60% of their wheat from the two countries. That figure is nearly 70% in the Democratic Republic of the Congo and exceeds 80% in Egypt. Russia alone supplies 45% of Namibia’s wheat, and 100% of Benin’s. With grain products often accounting for a large share of local diets, the risk of hunger and undernourishment is rising fast – and not just for low-income households.

But many African governments have little scope to respond to this escalating crisis. Pandemic-related uncertainty led to massive capital flight from the continent, output shrank, and countries’ debt burdens grew heavier. Over $40 billion in debt repayments were due in 2021, and debt service is expected to exceed 7% of Africa’s GDP in 2022 even before the Ukraine crisis and the US Federal Reserve’s interest-rate hikes.

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