African leaders have approved the creation of a $20 billion financial stability fund aimed at preventing potential debt crises before they escalate, the African Development Bank (AfDB) has announced.
The new facility called the African Financial Stability Mechanism (AFSM), will operate with its own credit rating, enabling it to raise funds on international capital markets. The AfDB, which will host the mechanism, confirmed the development in a statement following the African Union (AU) summit in Addis Ababa over the weekend.
The idea for the fund was first proposed by African leaders in February 2022, with the AfDB tasked with laying the groundwork. The bank now plans to move swiftly to finalize a formal agreement and secure ratification from participating states.
Many African economies are struggling with mounting external debt repayments, sluggish government revenues, rising spending demands, and climate-related challenges. Unlike Europe and Asia, Africa currently lacks a dedicated financial safety net to stabilize economies during crises.
“If implemented as designed, the AFSM could save African governments approximately $20 billion in debt servicing costs by 2035,” said Kevin Urama, AfDB Vice President and Chief Economist.
Participation in the fund will be voluntary, open to any AU member willing to join. Additionally, the AfDB has made provisions for non-African members to hold up to 20% of the membership, ensuring that African states retain majority control.
Several African nations, including Kenya and Gabon, have faced significant debt challenges in recent years. Kenya’s currency experienced a steep decline in 2023 due to investor concerns over its ability to repay international bonds, while Fitch recently downgraded Gabon’s credit rating.
The AFSM will provide concessional loans—offering lower interest rates than commercial lenders—to help countries maintain financial stability. However, recipients will be required to implement defined macroeconomic and fiscal reforms.
“The AFSM’s core mandate is not to bail out African states but to prevent financial crises before they occur,” the AfDB emphasized.
