AU Summit: AfDB Proposes African Financing Stability Mechanism as Financial Safety Net

Africa is taking a bold step toward financial resilience. The African Development Bank (AfDB) is set to introduce the African Financing Stability Mechanism (AFSM) at the 38th African Union (AU) Summit, happening from February 15 to 16, 2025, in Addis Ababa, Ethiopia. This groundbreaking initiative is designed to shield African economies from financial turbulence and give countries a stronger grip on debt refinancing and economic stability.

Africa has long faced challenges when it comes to handling economic shocks, from fluctuating commodity prices to global financial uncertainties. Unlike other regions with established financial stability frameworks, Africa has been navigating these storms without a structured safety net. That’s exactly what the AFSM aims to change.

By providing concessional refinancing options and boosting liquidity, this mechanism will lower the risk of defaults, enhance credit access, and improve economic resilience. It’s a proactive move to ensure that when financial storms hit, Africa stands strong.

The proposal is already gaining momentum. AfDB President Akinwumi Adesina has been vocal about its importance, stressing that Africa must build its own financial shields rather than relying on external aid whenever crises arise. The AU’s committee of 15 Ministers of Finance has already given the green light to the framework, signaling strong regional support.

“Africa, therefore, needs a regional safety net to provide affordable debt refinancing liquidity at scale,” said African Development Bank President Akinwumi Adesina

Beyond the AFSM, the AU and AfDB will present the Strategic Framework on Key Actions to Achieve Inclusive Growth and Sustainable Development (IGS) during the summit. Think of it as a roadmap to sustainable progress, focusing on equitable growth, industrialization, and financial self-sufficiency.

This initiative marks a shift in Africa’s economic playbook. Instead of reacting to financial crises, the continent is getting ahead of the game, building resilience, strengthening institutions, and ensuring a stable financial future.

Africa’s rising debt burden has been a growing concern over the past decade. In 2010, the continent’s total external debt stood at approximately $400 billion. However, by the end of 2023, that figure had nearly tripled to $1.152 trillion, significantly increasing the financial strain on governments. The debt-to-GDP ratio has also surged from 31% in 2010 to 67% in 2023, highlighting the mounting challenge of debt sustainability.

Beyond just borrowing, the cost of servicing these debts has escalated dramatically. In 2010, African countries spent about $61 billion on debt servicing, but by 2024, this figure had soared to $163 billion. This means that a substantial portion of public revenues is now directed toward debt repayment, often exceeding budgets allocated for critical sectors like education, healthcare, and infrastructure development.

One key shift in Africa’s debt landscape has been the increasing role of private creditors. A decade ago, private lenders accounted for about 30% of Africa’s total debt, but by 2021, that share had risen to 44%. This trend has led to higher borrowing costs, making it even more difficult for many countries to manage their financial obligations.

As Africa’s debt continues to rise, initiatives like the African Financing Stability Mechanism (AFSM), proposed by the African Development Bank, are becoming increasingly critical.

By providing a structured approach to debt refinancing and economic stability, the AFSM aims to prevent financial crises and ensure that African economies can continue growing without being crippled by unsustainable debt.

Last Updated on May 11, 2025 by samboad