Players in African Finance Encouraged to Impact Economic Development

Given historical recovery of most of the HIPC countries through debt forgiveness initiative and subsequent sovereign debt ratings, there is a new wave of sovereign debt raisings. This was highlighted strongly at the recently held MFW4A Partnership Forum which was held in Dakar Senegal.  MEFMI was represented at this event by the Director of the Financial Sector Management Programme, Mr Patrick Mutimba.

The Forum, which is a global partnership that draws participants from several leading institutions including the World Bank, IFC, African Development Bank, capital markets practitioners, the insurance industry and regional economic blocks on the African continent was resourced by renowned financial experts.  The resource persons were drawn from Central Banks, development banks, Institute of Finance and Economics, and leading Universities among other prominent institutions. The Objective of the Forum was to spell out challenges in finance for Africa.  The forum also provided a platform for the key players and experts in financial markets to brain storm and explore possible approaches to overcome the current and emergent challenges facing African Economies and Central Banks.

Attention was drawn to the dichotomy of African States experiencing growth in sovereign reserves, while also facing stiff financing costs when there is a need to raise debt on international bond markets. Debt issuance needs to be accompanied by prudent frameworks to ensure that the debt is utilised for priority sectors that have been identified as appropriate to achieve any nation’s objectives. It is understood that the primary objectives of reserves management is the safety, liquidity and appropriate import support. To this end most reserves can act as a hedge and are invested in the most liquid global markets, off the domestic markets and in currencies more correlated with imports. Is there an opportunity of optimising the impact of growing reserves on the continent without deviating from best practice? AfDB’s Africa 50 infrastructure fund is probably an initiative that could provide an answer.

There was also a clear demonstration of the role of state sponsored lead financial institutions impacting the development of an economy, using Morocco’s CDG group. On policy level, the merits and demerits of using a single commonly accepted measure as barometer to assess economic development.  A key measure would be closely monitored and when a breakout limit is perceived to be exceeded or breached, the authorities then take action to attempt to maintain the economy’s path towards medium term objectives. For instance stricter requirements on capital buffers for commercial banks would then be employed. The conclusion was that the signals from key measures like Credit/ GDP ratio or employment level need to be carefully interpreted due to structural changes in an economy. This is an important consideration for MEFMI countries.

MEFMI will continue to strengthen its ties with critical global players in financial markets in order to ensure that member countries move in tandem with global trends. MEFMI’s role in identifying emerging opportunities and challenges in the current environment is more important than ever.

More on the MFW4A can be found at http://www.mfw4a.org/2014forum/presentations.html