Hanan Morsi: Deputy Executive Secretary and Chief Economist at the United Nations Economic Commission for Africa, and a member of the “African Expert Team” within South Africa’s presidency of the G20.
Addis Ababa – The spring meetings of this year for the International Monetary Fund and the World Bank have made it clear that the global financial system, burdened by recurring crises, is no longer fit for its intended purpose. Growth rates are slowing, climate volatility is increasing, and debt crises are worsening, while the available political tools remain cumbersome, fragmented, and insufficiently effective.
Africa has long borne the brunt of these failures. However, rather than merely calling for reform, African governments are increasingly putting forth practical solutions, building institutions, and launching innovations aimed at creating an international financial system that allocates capital more efficiently, capable of withstanding growing shocks and reducing inequality gaps.
Calls for reform are often framed as demands for justice, yet the more pressing issue today is efficiency. The current global financial system fails to provide enough liquidity during crises, invest in climate adaptation, and direct capital towards high-yield green growth opportunities, while it struggles to settle sovereign debt disputes quickly enough to preserve development gains. It is an economically broken system that leads to instability.
For this reason, African countries have advocated in recent years for reforms in debt structuring and financing in local currencies, urging multilateral development banks to play a more effective role. These proposals reflect a growing awareness that structural failures raise risk costs, deter investors, and expose national economies to greater external shocks.
The debt crisis is the most urgent challenge and threat to global development. Today, more than 30 African countries spend more on servicing their external debts than on health and education. Although the Global Sovereign Debt Roundtable Guide from the IMF encourages early dialogue between creditors and borrowers and emphasizes transparency, its impact remains limited due to the lack of enforceability and implementation mechanisms.
African governments have responded by calling for a framework to resolve debt crises that is based on clear, predictable rules, taking into account development needs. The current system, marked by delays, high-risk premiums, and poor coordination among creditors, fails to align incentives, contain repercussions, and attract private investment. Fortunately, South Africa’s presidency of the G20 presents a unique opportunity for the continent to push for bold reforms that redefine debt not as a burden but as a catalyst for growth.
Among the notable examples of Africa’s efforts to redesign the global financial system is the proposal to reallocate Special Drawing Rights (SDRs) – reserve assets issued by the IMF – as hybrid capital for multilateral development banks. This proposal, put forward by the African Development Bank and the Group of 24, allows SDRs to be utilized without losing their status as reserve assets, thereby creating greater room for concessional lending. Several development banks have begun examining this proposal as a means to enhance their balance sheets and increase their lending capacity.
Similarly, regional institutions such as the Trade and Development Bank and the Arab Bank for Economic Development in Africa (BADEA) are developing collective credit instruments, South-South financing platforms, and climate financing mechanisms specifically designed for fragile contexts. These are not just innovations but viable models that global decision-makers should adopt and expand.
It is crucial to emphasize that public financing alone is insufficient to provide the level of investments needed for growth, resilience, and speeding up the climate transition. However, private capital flows continue to avoid many African economies due to perceptions of high risk, elevated borrowing costs, limited financial instruments, and a lack of qualifying investment projects.
Instruments such as credit guarantees, blended finance, and first-loss capital can help rebalance risk and returns and attract private investment. However, to be effective, they must be used extensively and not just in pilot projects. Early institutional reforms that enhance legal frameworks and build capacity remain essential to develop a strong investment project portfolio.
The African experience shows that multilateral development banks must support investments both in early and late stages. Ongoing gaps include neglecting support for financing in local currencies and developing local capital markets. Excessive reliance on foreign currency loans exposes African nations to market volatility and increases debt service costs. Nevertheless, development institutions continue to treat local currency financing tools as marginal or experimental.
This should not be the case.
Programs like “Tesouro RendA+” and “Educa+” in Brazil can serve as useful models, demonstrating the significant potential of inflation-adjustable savings tools that individuals can easily access. These tools, offered through mobile applications and gift cards starting from just one dollar, have successfully mobilized long-term local capital and enhanced financial inclusion. Similarly, the African Payment and Settlement System (PAPSS), which is now operational among several central banks, enables cross-border trade in local currencies, addresses market bottlenecks, and provides a model for building a more flexible financial system.
To effectively respond to climate shocks, Africa needs a comprehensive toolkit that includes debt-for-climate swaps, green bonds, and concessional financing mechanisms capable of attracting private investments in climate adaptation efforts. Although the IMF’s Resilience and Sustainability Trust represents a positive step, it requires significant expansion. More importantly, it must mobilize larger investments from the private sector in climate-related areas.
The challenge is not only to innovate new tools but also to improve implementation mechanisms. Development banks and donors are required to streamline access to financing mechanisms, enhance coordination, and integrate climate resilience into national investment strategies.
Africa’s priorities – from timely debt resolution, enhancing readiness for early-stage investments, local currency borrowing, to broad-based climate financing – are not merely regional demands but systematic solutions that could make the global financial system more responsive and prepared for future shocks.
In a world beset by complex crises and capital scarcity, African governments are presenting practical and forward-thinking solutions to address the most pressing vulnerabilities in the global financial system. South Africa’s G20 presidency contributes to elevating this dialogue, conveying a clear message: Africa is not asking to join the global discourse – it is helping shape it.
