The Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, and the governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, have called on their counterparts from the African Union (AU) to work towards the establishment of the African Monetary Institute (AMI) as well as the operationalisation of the African Financing Stability Mechanism (AFSM) to cure the continent from existing debt and payment system challenges.
The proposed AFSM framework aimed at providing debt refinancing loans at favourable terms and help alleviate the debt burden, and fiscal challenges including financial instability that African countries face.
On the other hand, the AMI is a landmark institution that will serve as the cornerstone of Africa’s financial and economic integration, especially in the realisation of the single currency project, which had eluded the monetary authorities in recent years.
Both Edun and Cardoso spoke at the 5th African Union Extraordinary Session of the Specialised Technical Committee (STC) on Finance, Monetary Affairs, Economic Planning and Integration in Abuja.
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Cardoso said the AMI will mark a significant milestone in Africa’s journey toward a common currency, while the AFSM represented a proactive approach to safeguarding financial stability in an increasingly uncertain global economic landscape.
On his part, Edun, who was represented by the ministry’s Director, Special Projects, Aisha Umar, pointed out that the African economy had experienced significant challenges, including poverty and inequality, dependence on aid, global competitiveness, periodic debt crisis, and climate change, among others in the past few years.
Edun said Africa’s public debt had increased significantly over the years, becoming more non-conceptual and short term, adding that debt service was higher with increased financing risks.
He said, “As you must have noticed since 2011, the average maturity of Africa’s external debt has fallen from close to 23 years to around 17 years in 2022.
In her remarks at the meeting, Deputy Executive Secretary/Chief Economist, United Nations Economic Commission for Africa (UNECA), Dr. Hanan Morsy, disclosed that about $5 billion is lost annually to inefficient payment systems that depend on Foreign Exchange (FX) rates, further hindering the African intercontinental trade because of high transaction costs, adding that both AMI and AFSM could become the enablers of transformation if well supported by the various African governments.
She said a single African currency supported by a robust monetary policy framework will cut transaction costs, and accelerate trade, allowing African businesses to compete and thrive.
Chief Economist/Vice President for Economic Governance and Knowledge Management, African Development Bank (AfDB) Group, Prof. Kelvin Urama, said African currently pays over 500 per cent in interest costs when borrowing from the international capital markets than if they borrowed from Multilateral Development Banks (MDBs).
He said approval of the AMI statutes and AFSM technical and operationalisation report was particularly critical to building economic resilience and accelerating the continent’s development.
Urama said Africa’s public debt had surged by 170 per cent since 2010 due to both structural issues in the global debt architecture, recent global and domestic shocks, and also weaknesses in our own macroeconomic fundamentals, which needs attention.
He said amid the challenges, he said Foreign Direct Investments (FDIs) declined by 44 per cent in 2022 while debt portfolio flows were about 17 per cent while Official Development Assistance (ODA) declined by 6 per cent.
He added that only remittances remained resilient, rising by about 2 per cent in 2022.
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