UN Office of the Special Adviser on Africa 115d ago

Africa's debt vulnerabilities are deepening, shaped by a confluence of compounding global shocks: volatile commodity prices, the economic fallout of COVID-19, and sustained currency depreciation. Together, these pressures have constrained access to international capital markets, driven up debt servicing costs, and eroded the fiscal space governments need to invest in healthcare, education, and infrastructure. At the heart of this crisis lies a structural problem: currency exchange risk. In 2023, over 70% of Africa's debt increase came not from new borrowing, but from local currencies losing value against the dollar. A government in Malawi that borrowed in dollars in 2012 saw its debt payments rise by 513% by 2022. A local currency loan would have kept those payments stable. The UN Office of the Special Adviser on Africa (OSAA) has examined local currency (LC) lending as a key instrument for mitigating this risk and improving debt sustainability across the continent. This video draws on OSAA's policy research to explore: - The scale and drivers of Africa's external debt distress - Why currency depreciation — not new borrowing — is the primary culprit - How innovative LC financing mechanisms work, including direct long-term LC lending by Multilateral Development Banks, LC bonds, and bilateral swap arrangements - The barriers to scaling these instruments, including MDB reluctance to assume currency risk, moral hazard concerns, and short-term policy incentives - Targeted policy recommendations for expanding LC lending and strengthening currency risk management 📄 Read the full OSAA publications: https://www.un.org/osaa/content/financing-development