AFRICAN leaders have approved the creation of a $20bn financial stability fund aimed at preventing debt crises before they take hold, according to the African Development Bank (AfDB). The African Financial Stability Mechanism (AFSM) will serve as a financial safeguard for economies struggling with mounting debt obligations, sluggish revenues, and climate-related economic pressures.
The AfDB, which will host the fund, confirmed its establishment in a statement seen by Reuters on Tuesday. The mechanism is expected to receive its own credit rating, allowing it to borrow from international capital markets and provide concessional loans to participating nations.
The approval follows a mandate from African leaders in February 2022, tasking the AfDB with structuring the initiative. With the formal go-ahead secured at the recent African Union summit in Addis Ababa, the AfDB now plans to move swiftly to draft agreements and secure ratifications from participating countries.
A safety net for African economies
The AFSM was created in response to Africa’s lack of a regional financial safety net, unlike Europe and Asia, which have similar mechanisms. With many African economies under strain from high external debt repayments, currency volatility, and credit rating downgrades, the fund is designed to stabilise financial markets and reduce borrowing costs.
AfDB Vice President and Chief Economist Kevin Urama told Reuters that if implemented as planned, the mechanism could save African governments approximately $20bn in debt servicing costs by 2035. The fund will provide emergency financial support to prevent defaults and economic shocks, but will not function as a bailout facility. Instead, member states receiving funds must commit to macro-economic and fiscal reforms to ensure long-term financial stability.
Open membership and global participation
Participation in the AFSM will be voluntary and open to all African Union member states. The AfDB also confirmed that up to 20 percent of the fund’s membership could come from non-African countries, provided that African nations retain majority control.
Several African nations, including Kenya and Gabon, have faced increasing investor concerns over their ability to meet Eurobond obligations, leading to currency depreciations and credit rating downgrades. The AFSM aims to offer an alternative financing source that reduces dependence on expensive international loans.
AfDB President Akinwumi Adesina previously told Reuters that the fund would provide loans at concessional rates, ensuring affordability while encouraging policy reforms that strengthen economic resilience.
A step toward financial independence
The approval of the AFSM marks a significant milestone in Africa’s efforts to build a self-sustaining financial system. By providing a buffer against external shocks and reducing reliance on costly foreign debt, the mechanism is expected to support long-term economic stability across the continent.
With African nations moving toward implementation, the next step will be securing member commitments and establishing a clear governance framework to operationalise the fund. The AfDB remains optimistic that the AFSM will help African economies navigate debt challenges, improve credit ratings, and enhance investor confidence in the region’s financial future.
