For An African Liquidity And Stability Mechanism: Addressing Financial Vulnerabilities To Unlock Africa’s Potential

African countries are now under the threat of a new debt crisis whilst access to international capital markets is becoming increasingly difficult for many issuers across the continent. At the same time, financing needs for investments in education, health and infrastructure require more external financing. This dilemma cannot be solved without a more stable and liquid market in African government bonds. This policy brief argues that such a market can be achieved by combining specific tools under a regional African financial arrangement. This toolbox would need to adapt to the diversity of needs of each of the countries. One such tool is the Liquidity and Sustainability Facility (LSF) which supports the liquidity of African bonds by providing a repurchase agreement facility. The second applies to commodity exporters, who have a fundamental problem of illiquidity leading to boom-bust cycles. A Commodity Hedging Facility (CHF) would provide a stabilization mechanism by supporting their intervention on futures markets. Third, a Credit Enhancement Facility (CEF) which would provide a rolling guarantee on new issuances, and fourth a Debt Restructuring Financing Facility (DRFF) would help reduce debt in a market-friendly approach when needed. The facility would require a capital base provided by African countries themselves, akin to other RFAs, complemented by donor resources, possibly including a reallocation of Special Drawing Rights. We estimate that about $40 to 80 billion of callable capital would be sufficient to make it sustainable.