Africa faces a financing gap of up to USD1.3 trillion annually to meet its sustainable development goals by 2030, Amb. Claver Gatete, the Executive Secretary of the United Nations Economic Commission for Africa, noted on Monday, November 18. ALSO READ: Africa’s sustainable development hinged on effective financial markets, says ECA’s Gatete Barely a week after he highlighted five critical policy priorities toward an empowered, climate-resilient Africa, Gatete who also serves as the United Nations Under-Secretary-General said this in Addis Ababa, Ethiopia, at the start of a two-day regional consultation for the Fourth International Conference on Financing for Development in Africa. He observed that the different crises the continent continues to confront have “also brought us to a critical point.” ALSO READ: Kagame: Now is the time to make international financial system fit for purpose Today, he noted, the African continent confronts different challenges – including diseases, geopolitical tensions and economic downturns – that “pose serious threats to our collective progress” and demand yet another unified response. As of 2023, the continent’s external debt exceeded USD 1 trillion with extremely high annual interest payments - in effect, limiting our ability to fund essential development, he said. ALSO READ: How can Africa close its staggering financing gap? Over the last few years, Gatete noted, the number of impoverished people on the continent has risen sharply and expected to reach 476 million this year, as 149 million previously non-poor people, have slipped into poverty, largely due to the escalating impact of climate disasters. He added: “And the current global financial system, unfortunately, is failing to meet Africa’s needs. To put it simply, without immediate action, we risk falling short of achieving the 17 SDGs by 2030. The question now is: how do we address this crisis? “The time has come to overhaul our financial architecture and reform it into one that fairly represents and responds to the needs of developing nations, and champions financial stability for Africa’s development. Africa needs a financial system that prioritizes the Sustainable Development Goals, AU Agenda 2063 and climate action, and leverages both concessional finance and robust domestic resource mobilization to chart a new path forward.” To this end, he proposed five actionable steps “to guide us” to realize this vision: Africa needs tax reform for resilience First, Gatete said, Africa needs tax reform for resilience. ALSO READ: A new global tax order could benefit Africa “We must broaden our various countries’ tax base, strengthen compliance mechanisms, and embrace digital technologies to ensure revenue collection is both efficient and effective,” he said, noting that Africa’s current tax-to-GDP ratio, at 15.6%, lags behind other regions. ALSO READ: African tax systems must deliver – AfDB’s Adesina However, he noted, increasing this ratio by even a few percentage points could unlock billions for sustainable development. Use of tax incentives be targeted, reviewed periodically Second, he noted, the use of tax incentives must be targeted and reviewed periodically. “We must ensure that the incentives offered to companies deliver genuine benefits to communities, jobs and our economies.” Combat revenue leakages Third, Gatete said, it is crucial that we combat revenue leakages through better controls on illicit financial flows. ALSO READ: Illicit outflows hurting Africa’s revenue collections, development efforts Recent trends in digital assets and crypto-assets are creating new avenues for tax evasion, he said. “But we must strengthen measures against these practices in order to retain the capital needed for our development.” Immediate relief on debt service Fourth, he noted, it is essential for Africa to have immediate relief on debt service. Revising the G20 Common Framework to include fast-tracked restructuring procedures will go a long way to enable African countries to manage debt sustainably, he proposed. The G20's Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative (DSSI), known as the Common Framework (CF), was launched in November 2020. Its main aim was to strengthen the international debt architecture for the world's poorest countries. He added: “Additionally, extending the Debt Service Suspension Initiative (DSSI) will offer breathing space for economies in distress.” Rechannel special drawing rights to multilateral development banks Finally, Gatete proposed, rechannelling Special Drawing Rights (SDRs) to Multilateral Development Banks (MDBs) would inject the much-needed liquidity into African economies, support their growth and help them weather external shocks. The SDR system came into existence in 1968. In May 2023, African Ministers of Finance, Planning and Economic Development called for reforms of the IMF’s Special Drawing Rights (SDR) system to strengthen the global financial safety net and make more liquidity available to developing countries. Among others, Hanan Morsy, an Egyptian economist, who serves as the Deputy Executive Secretary and Chief Economist of the United Nations Economic Commission for Africa, based in Addis Ababa, delivered a presentation on reforming the SDR allocation and rechannelling mechanism. She emphasized that when SDRs are allocated, they tend to disproportionately benefit countries that are less in need of them. This is because, she explained, SDRs are distributed in proportion to existing IMF quotas, which are primarily a function of an economy’s size and relative position in the world economy. For instance, the economist noted, during the 2021 general SDR allocation of $650 billion, high-income countries, which are least likely to require or utilize SDRs, received approximately $450 billion, constituting almost 70% of the total allocation. Africa, with a population exceeding 1.4 billion, received fewer SDRs than Germany, a country with a population of only 83 million. Gatete said: “With Africa’s debt-to-GDP ratio among the highest globally, and growing poverty exacerbating this, we must approach the Fourth Financing for Development Conference in Spain next year with a united voice and a clear agenda. “Let us not forget the strength of data in driving home our call for change. Africa’s current financing needs speak for themselves, and it is through collective advocacy that these numbers will shift. The Pact for the Future offers an opportunity to solidify trust between the Global North and South by championing equitable reforms to the global financial architecture.” ALSO READ: A critical analysis of the UN’s Pact for the Future and its impact on Africa The reforms advocated for today, Gatete said, such as fair credit ratings and greater liquidity support, will set the stage for Africa’s development.
