The African Union votes in favour of the creation of a continental financial stabilisation fund
Last Friday, at the 38th African Union (AU) Summit in Addis Ababa, representatives of African countries voted in favour of the creation of the African Financial Stability Mechanism (AFSM). This project, which was presented by the African Development Bank (AfDB), aims to protect the continent from potential debt crises by establishing a regional financial stabilisation fund.
The AFSM is to be based at the African Development Bank and will have its own credit rating. It should enable African countries to borrow on international capital markets at more favourable conditions and thus increase their economic resilience. Africa has so far been the only continent without such a mechanism, while Europe and Asia have already set up similar systems. According to the Vice President of the AfDB, Kevin Urama, African countries could save around 20 billion US dollars in borrowing costs by 2035 if the AFSM is successfully implemented.
The main aim of the AFSM is to take preventative measures against future financial crises before debt leads to an economic devaluation of the national currency. The fund is not only intended to reduce borrowing costs, but also to promote the stability of the financial markets on the continent. According to the AfdB, African countries are facing a number of debt problems. For example, in Kenya where the question of the repayment capacity of international Eurobonds by investors led to a sharp devaluation of the currency in 2023 and in Gabon where a rating downgrade by the agency Fitch Ratings last week, forced financial problems. With the AFSM, money is lent at concessional interest rates so that beneficiaries commit to certain macroeconomic and fiscal reforms, AfdB President Dr Akinwumi Adesina said. He further emphasised that the main aspect of the fund is not to provide bailouts for African countries, but to prevent them.
The key points of the AFSM include the provision of emergency liquidity lines for member states to help them bridge short-term financial difficulties. The mechanism will facilitate investment in sustainable projects in line with the Sustainable Development Goals of the United Nations. It will also promote cooperation between African countries and support them in pursuing a common approach to overcoming shared economic challenges.
The concrete development of the fund was initiated by the AfDB in February 2022 at the request of African Heads of State and Government after the Covid-19 pandemic and the war in Ukraine led to debt crises and defaults in countries of the Global South. Membership of the AFSM is voluntary and open to all AU Member States. In addition, up to 20% of non-African countries can also become members.
Now that the AFSM has been officially approved, the African Development Bank will prepare a ratification-ready version of the decision. The impact that the AFSM can achieve will become clear once it has been finalised. The number of countries that join the mechanism will determine the success of the AFSM. The idea of a regional financial institution for Africa is not new and has been discussed since the 1960s, but earlier attempts failed due to insufficient funding and political differences between individual government representatives.
Corruption allegations against former Prime Minister of Mauritius
Pravind Jugnauth, the former Prime Minister of Mauritius, was released on bail on Sunday evening after he and his wife were arrested the previous day by the Financial Crimes Commission (FCC) on charges of money laundering. Jugnauth’s arrest was preceded by several searches, including his home and that of two other suspects, prominent businessmen who run a local leisure company. Luxury watches, travel documents and suitcases containing around 2.4 million US dollars in local and foreign currencies were seized. The contents of the suitcases were linked to the Jugnauths as their names appear in the seized documents.
Jugnauth, his wife and several close associates were subject to travel restrictions and bans on contact with witnesses for the duration of the investigation. The former prime minister’s lawyer stated that his client denied the allegations. The co-defendants, the two businessmen and a deputy mayor, are still in custody pending a decision on their application for bail. Their lawyers have not yet commented on the allegations.
Jugnauth’s arrest follows a series of investigations launched by current Prime Minister Navin Ramgoolam shortly after he took office in November, promising to tackle corruption in the country. Since the beginning of February this year, this investigation has revealed the extent of the surveillance infrastructure built up by Jugnauth in the country (press review CW 46/2024) and the associated financial waste. In addition to spending hundreds of millions US dollars on the surveillance infrastructure, an independent audit also uncovered the falsification of key economic indicators such as GDP growth figures and the island state’s national debt during Jugnauth’s term of office from 2017 to 2024.
The Monetary Policy Committee (MPC) of the Bank of Mauritius was originally intended to determine the monetary policy to be pursued by the bank, to ensure price stability and to take into account a balanced economic development of the country. According to the former Minister of Finance and recently appointed Governor of the Bank, Dr Rama Sithanen, it was under strong external pressure and subject to political interference. The Mauritius Investment Corporation (MIC), a body set up during the Corona pandemic to support Mauritian businesses and additionally help stabilise the economy, also became an apparatus of questionable transactions worth billions Mauritian Rupees to politically connected individuals and companies. The International Monetary Fund (IMF) criticised the structure of the MIC, arguing that the boundaries between monetary and fiscal policy were blurred.
Due to this politicisation of decisions and the lowering of interest rates instead of an increase to curb inflation, the already existing currency crisis of the Mauritian Rupee was further exacerbated. The devaluation of the Rupee had become one of the most pressing economic issues driving up the cost of living. In just ten years, from 2015 to early 2025, the value of the Rupee fell from 32 per US dollar to 48, a depreciation of around 50%. Alongside tourism, financial services currently account for the majority of the country’s economy. However, in order to remain one of the most stable economies in Africa and counteract the depreciation of the rupee, Mauritius must switch to an economic model of innovation and productivity, according to economist Sameer Sharma.
Shortly after his election last year, Prime Minister Ramgoolam reopened the Chagos Island Talks organised by his predecessor, citing increased inflation and the country’s unstable financial situation. Until October last year, the archipelago was the last British overseas territory in the Indian Ocean and serves as the location of a US military base, which the UK is currently leasing to the US. Under the Chagos agreement, the UK would retain the lease for the base on the largest island, Diego Garcia, but hand over sovereignty to Mauritius. Ramgoolam is reportedly hoping for a higher payment from the UK, as well as an upfront payment and a shortening of the originally envisaged 99-year lease term. There are currently disagreements between Mauritius and the UK regarding the changes to the agreement. Further negotiations are pending, as US President Donald Trump is also expected to comment on the agreement.
In other news
The Malian director Souleymane Cissé, known as a pioneer of African cinema, died on Wednesday at the age of 84. Throughout his career, Cissé campaigned for the development and appreciation of the Malian and African film industry. On the day of his death, he appealed to Mali’s military leadership to promote and support the country’s film industry and to help it keep up with the competition on the continent. On Wednesday morning, the director presented two trophies at a press conference at the start of the 29th edition of the Pan-African Film and Television Festival of Ouagadougou (FESPACO), which takes place in the capital of Burkina Faso from 22 February to 1 March. FESPACO is one of the largest and most prestigious film festivals on the African continent and Cissé is one of only two filmmakers to have won the FESPACO Grand Prize twice. Cissé’s work has also attracted international attention and recognition. He was the first filmmaker from sub-Saharan Africa to win the Jury Prize for his film ‘Yeelen’ at the Cannes Film Festival in 1987. He was honoured there again in 2023, when he received the Carrosse d’Or prize for his work ‘Finye’, a special award that recognised his extraordinary contribution to world cinema.