New facility to help alleviate African debt crisis and drive sustainability launched

FSD Africa has partnered with the UN Economic Commission for Africa and the Children’s Investment Fund Foundation on a programme to help African governments unlock fiscal space for sustainable development and climate action.

FSD Africa, the UK-backed financial sector development agency, the UN Economic Commission for Africa (UNECA), and the Children’s Investment Fund Foundation (CIFF) have launched a funded sovereign debt advisory and institutional support programme for debt management offices (DMOs) across Africa.

The aim of the programme is to support the integration of sustainable finance into sovereign debt strategies, which the partners said will help to unlock fiscal space for development and climate action as well as mobilise domestic and international investors. 

Speaking to Impact Investor, Cecilia Bjerborn Murai, who leads the sustainable finance and debt advisory work for FSD Africa, explained that the programme is being funded by the UK government and CIFF, an independent philanthropic organisation working with children and adolescents, whilst UNECA will act as the delivery partner.

“FSD Africa brings the technical expertise, while UNECA is a pan-African institution with great convening power, who really represents the African voice on debt sustainability. CIFF has come in to fund this programme alongside the UK government because they understand that if we don’t tackle government debt, then the impact areas that they care about will not be resolved as there will be no budget left,” she said.

“You cannot hope to address the SDGs or other sustainability goals in Africa if you don’t resolve the debt crisis,” she added.

Funded hands-on support

The programme will provide support to both DMOs and ministries of finance across Africa and will cover three main aspects. “There is the institutional support for the DMOs, including the provision of additional human resources where needed, there’s also technical assistance for the preparation of the instruments, and the third area is about developing partnerships based on financing needs to make these instruments attractive and meaningful for the countries in the context of their debt refinancing operations,” Bjerborn Murai said.

She added that the programme will be rolled out “on a case-by-case basis where there is interest from individual governments” and that the partners will work with a network of both local and international debt sustainability experts.

The programme’s launch follows the second Africa Climate Summit held in Adis Ababa earlier this month and it aligns with the summit’s focus on Africa-led solutions, domestic capital mobilisation, and resilient local-currency finance.

FSD Africa said these are also core themes of its 2025-2030 strategy for the region, which aims to mobilise and catalyse £10bn of private capital, 84% of it in local currency, to support greener and more resilient economic growth.  

Challenges

According to the programme partners the servicing of rising debt is compressing the capacity of African governments to fund increasing climate and development needs and that strengthening domestic markets and aligning debt strategies with sustainability can create a virtuous cycle. This could help to relieve near-term pressures to redeem sovereign debt allowing for the financing of the energy transition, infrastructure, and other national priorities.  

“Public debt levels in Africa have reached approximately 65% of the continent’s GDP,”  said Bjerborn Murai, explaining that high levels of external debt make countries sensitive to global shocks and changes but they also restrict governments’ ability to allocate budget for critical developmental, social and climate investments.

“This is because there’s no fiscal space left in government balance sheets to allow these investments to take place,” said Bjerborn Murai, adding that large-scale infrastructure projects in particular rely on government guarantees over the long term.

“But, there isn’t room for that because of the debt situation that many countries are in,” she added.

Bjerborn Murai said that sustainable finance provides a unique opportunity in this context because it offers tried and tested instruments, such as sustainability-linked bonds, that are non-debt generating, offer lower pricing and longer maturities, and can be used in the context of refinancing expensive debt “sitting on a government’s’ finance books”.

“[It can also] help smooth a country’s debt profile if it faces large bullet repayments, by spreading these over longer periods and reducing refinancing risks and debt service pressure,” she added.

The partners are also inviting DFIs, donors, philanthropic and private investors to co-create a multi-country guarantee and risk-sharing envelope that could adequately respond to Africa’s near-term sovereign refinancing needs, with an initial target of US$10bn in guarantees and first-loss capacity. This, they, said meaningfully lower execution risk, improve pricing, and catalyse institutional demand alongside the technical assistance programme.