Press Release No. 08/1997

Addis Ababa, 2 April 1997: The sixth session of the African Ministers of Finance came to an end here at the headquarters of the United Nations Economic Commission for Africa (UNECA) after three days of exhausting deliberations whose implications have the potential for bringing about a sea-change in the way Africa does business.

Financial reforms and the debt overhang provided the frame work for Ministers' debate. They were joined by the World Bank, the IMF and the African Development Bank (ADB) and leaders of capital markets and banks from around the world. Among them: Stanley Morgan, Lehman Brothers, the International Bank of Settlements (BIS) and the Nordic Investment Bank (NIB). Visible as in no other conference in the history of ECA, managers of emerging African stock exchanges brushed shoulders with governors of central African banks and academicians. The Conference adopted two resolutions and a declaration.

Resolution 1: Growth and Development Finance in Africa and Financial Sector Reforms

The Conference of African Ministers of Finance, aware of the importance of the financial sector in Africa, its fragile nature in most African countries, and the need to enhance its role both in the mobilization of domestic and external resources, recognizing the importance of continuing with the implementation of and deepening financial sector reforms in many of our countries, the need for enhanced autonomy of central banks and the importance for coordination between monetary and fiscal policy,

Noting the important role capital markets are playing in other regions of the world in the mobilization of domestic and external resources needed to support the development process and in attracting foreign investment,

Conscious of the fact that a reformed, efficient and buoyant financial sector can substantially contribute to the development of a country and its integration into international financial markets,

Aware of the importance of micro-financing to the alleviation of poverty in the region, Recalling resolution annex II on the "Problematique offinancing the development process in Africa" adopted by the fifth session of the Conference of African Ministers of Finance in March 1994 in Libreville, Gabon which called upon African countries to intensify efforts to improve the institutional framework needed for effective intermediation in African countries and resolution 2(IV)on "The role of indigenous banking and financial institutions in the mobilization of financial resources for development" adopted by the fourth session of the Conference in December 1991 in Addis Ababa, Ethiopia,

Having reviewed the state of development finance in Africa and noted the decline in traditional sources of foreign assistance to the continent and the need to find substitute sources of funding for their development process,

Considering the dependency of the majority of African countries on external assistance and that official development assistance to African countries has in recent years either declined or stagnated in real terms,

1. Urges African countries to continue with their economic and financial reforms, with a view to achieving sustainable development for their economies and for their effective integration in the world economy and among themselves;

2. Calls upon African countries to implement appropriate measures to reduce gradually their heavy dependency on external financing and to improve mobilization of domestic savings and non-debt creating flows and to explore the potentials for privatization as a way of promoting the development of capital markets;

3. Urges African countries to adopt internationally accepted best practices with regard to management, prudential supervision and regulation of their banks and non-bank financial institutions;

4. Welcomes the steps taken by a number of African countries to improve the efficiency and transparency in the management of their money and capital markets and to create new ones where they do not exist;

5. Further calls upon African countries to intensify their efforts in deepening and broadening and strengthening the process of financial intermediation in their countries;

6. Encourages African countries to establish regional stock markets, particularly where individual countries lack the capacity to establish their own;

7. Appeals to the international community to step up significantly their financial support to African countries in the implementation of their economic and financial reforms ;

8. Urges the Economic Commission for Africa, the Organization of African Unity and the African Development Bank to continue to assist African countries, in collaboration with other agencies including the United Nations Conference on Trade and Development, in their mobilization of domestic and external resources needed to support development, financial sector reforms and in the development of their money and capital markets;

9. Urges the international community to assist African countries in building the human capacities and statistical capabilities needed for economic advancement;

10. Appeals to the international community to assist African countries with financial support in building micro-financing institutions.

Resolution 2: The Debt Problem and its Impact on Africa's Development Process

The Conference of African Ministers of Finance,

Concerned that despite notable efforts made by African countries to reform their economies and the support of the international community, the debt problem continues to be a major constraint on the economic and social development of many African countries,

Considering the amount of resources devoted by African countries to servicing their external debts which could be used for the development of their social sectors and improvement of their infrastructures,

Aware of the impact of the debt overhang on the continent's capabilities to attract non-debt creating flows, and in particular foreign direct investment,

Noting that official development assistance to African countries has either declined or stagnated in real terms,

Recalling resolution I(IV) on the "African debt problem"adopted by the fourth session of the Conference of African Ministers of Finance in December 1991 in Addis Ababa, Ethiopia and resolution annex I on the "Treatment of the debt of African countries" adopted by the fifth session of the Conference in March 1994 in Libreville, Gabon as well as the declaration on "Africa's external debt" adopted by the ECA Conference of Ministers in May 1995 all of which urged African countries and their development partners to find a lasting solution to the problem within the framework of promoting sustainable development in Africa,

Further recalling the various resolutions of African Heads of State and Government and the United Nations General Assembly on the same issue,

Appreciative of the efforts of the multilateral institutions and the international community to assist in finding a lasting solution to this problem as partially reflected in the Initiative for the Heavily Indebted Poor Countries (HIPCs) launched in 1996 by the World Bank and the International Monetary Fund,

Considering that a lasting solution to the African debt problem can be achieved in the context of a broad framework of budgetary discipline and prudence, proper recording and development of debt management capacity, donor assistance and resetting national priorities and for providing significant resources to these countries which will assist them to achieve sustainable growth and development and thereby enable them to move out of the debt and poverty trap,

1. Calls upon African countries in collaboration with the international community and multilateral institutions to intensify their efforts to find a durable solution to the problem;

2. Commit ourselves to continue with economic and financial reforms, enhance our debt and macroeconomic management capacities and the exchange of information on debt management, in order to contribute to the achievement of debt sustainability in our countries;

3. Urges the World Bank, the International Monetary Fund, the African Development Bank and other multilateral institutions to exercise more flexibility in particular with respect to the stringency of the ratio of total debt in net present value terms to exports in eligibility conditions for access to the HIPC Initiative in order to allow as many reforming African countries as possible access to the facility;

4. Stresses the importance of advancing the completion point for countries with a demonstrated record of a strong performance record over a prolonger period;

5. Appeals to the non-Paris Club bilateral creditors to take effective measures to reduce the stock of debt of African countries owed to them;

6. Further appeals to the multilateral financial institutions and international community to continue to support African countries with concessional financing including grants necessary for them to accelerate the pace of economic and social development and rehabilitate their social sectors, especially education and health, and improve their infrastructures.

Addis Ababa Declaration of The African Ministers of Finance On Growth And Development Finance in Africa at The Turn of the Century, Financial Sector Reforms And the African Debt Problem

We, the African Ministers of Finance gathered at Addis Ababa, Ethiopia, from 31 March to 2 April 1997, for the sixth session of the Conference of African Ministers of Finance, have reviewed the state of development finance, financial sector reforms and the African debt problem.

Within this context, we have undertaken a constructive dialogue with our development partners on a number of developmental issues of importance to our continent.

Furthermore, we have reaffirmed our commitment to economic and financial sector reforms, and in collaboration with our development partners, to finding a lasting solution to the African debt problem.

The important issues discussed included the role of multilateral financial institutions and bilateral creditors in Africa's development; financial sector reforms and the development of capital markets, within the framework of mobilization of resources needed to support Africa's development; and the continuing debt problems of African countries.

We acknowledge that in view of the weakening of traditional sources of development support and mechanisms for channelling financial aid, the conspicuous challenge that will face many of our countries will be finding substitute financing needed to spur growth and to reduce poverty.

We are aware that the challenging task of mobilizing domestic resources and attracting foreign investment will have to be intensified for gross domestic savings rates to be raised to higher levels needed to support a higher level of investment and growth. The need for reforming our financial sectors and developing viable money and capital markets has therefore to be perceived in the context of both raising domestic savings ratios and attracting foreign investment.

Accordingly, the deepening and broadening of Africa's financial sector and development of efficiently functioning capital markets will need to be a major priority as Africa moves to the twenty-first century.

We acknowledge the role multilateral financial institutions have played in assisting Africa to mobilize resources required to support development and in undertaking economic and financial reforms.

We urge them to continue to provide a greater proportion of the concessional finance and grants needed to support our infrastructural development and delivery of social services. We also call on them to assist Africa to build the appropriate capacities required for the continent to be able to attract non-debt creating resource flows.

We have also reviewed the African debt situation and noted with concern that despite notable efforts by African countries and the international community to reduce the burden of debt service for African countries, the stock of debt (in net present value terms) to exports ratio continues to increase. The stock of debtis estimated at US$340.5 billion at the end of 1996 and total debt service payments amounted to US$24.0 billion.

It is in this context, that African countries have welcomed the Heavily Indebted Poor Countries (HIPCs) Initiative launched by the World Bank and the International Monetary Fund in September 1996; more also that the Initiative for the first time has provided for relief on multilateral debt. This Initiative is a partial reflection of the commitment of the international community to finding a lasting solution to the African debt problem.

However, the eligibility conditions and debt sustainability analysis for Heavily Indebted Poor Countries Initiative (HIPC)should be more flexible. The HIPC has targeted only 41 countries of which 33 are in Africa and is possible that about half may benefit from the facility. With only 9 African countries from which data is available classified by the World Bank as relatively free of external debt problems and 32 classified as "severely debt distressed", the African debt problem will continue to stifle Africa's development and poverty eradication efforts.

We continue to be concerned that the magnitudes of the debt are obviously unsustainable. African countries continue to devote a large proportion of their resources to servicing their external debts, when their social sectors and infrastructures are in dire need of rehabilitation and reconstruction. We call on our development partners to assist the region in finding practical and lasting solutions to the twin debt and poverty problems.

We acknowledge that in the medium to long term, Africa's development will need to be enhanced by intensifying domestic savings mobilization and local investments efforts complemented by non-debt creating flows, including foreign investment. It is in this respect, that many of our countries have put significant efforts to attract foreign investment, including comprehensive revisions of our investment codes. Liberalized macro economic policies and political reforms currently being implemented are also intended to provide the necessary environment conducive to both local and foreign investment. We commit ourselves to continuing with these reforms and call on the donor community to support our efforts to attract foreign investment as well as opening up their markets to Africa's exports.

The challenges of globalization and liberalization of the world economy as well as financial markets dictate that our countries adapt rapidly to these developments if our continent is to become an effective partner in the international economy. We are committed to the process of ensuring that Africa moves in that direction and call on the international community to supplement our efforts with significant resources and appropriate support.(Refer to Press Releases 1 to 7)