UN launches funds to promote cheaper credit and green development for Africa | The mighty 790 KFGO

JOHANNESBURG (Reuters) – The United Nations on Wednesday launched a new funding mechanism aimed at saving African governments $ 11 billion in borrowing costs over the next five years while promoting greener investment and sustainable development.

The United Nations Economic Commission for Africa (UNECA) launched the Liquidity and Sustainability Facility (LSF) at COP26, the global climate conference in Glasgow, Scotland.

International investors with portfolios that contain African government bonds can turn to the LSF for short-term loans called repos by using the bonds as collateral.

This would make the bonds less risky and therefore more attractive to a wider range of investors. African governments would then benefit from higher demand and liquidity for their bonds, as well as cheaper financing costs.

The LSF said it could potentially save African governments up to $ 11 billion in borrowing costs over the next five years.

“In the industrialized countries there have long been large repo markets for their government bonds, which makes it easier to create stable and additional sources of funding,” said Egyptian Finance Minister Mohamed Maait.

“With the LSF it is our goal to be able to offer African governments and private investors alike a liquidity-promoting environment.”

The LSF will raise funds from institutions to fund the loans. For example, the first $ 200 million deal is expected to be announced in the first quarter of next year and funded by the African Export-Import Bank.

After that, it expects to raise the equivalent of $ 3 billion in the International Monetary Fund’s unit of currency, special drawing rights, from developed countries, and could eventually reach $ 30 billion in total, the LSF said.

It will seek to incentivize green or development-related investments such as green bonds or bonds related to sustainable development by offering better terms on its loans when they are backed by these types of instruments, said David Escoffier, LSF’s chief executive officer.

This will incentivize investors to buy them and in return African governments to spend them, he added.

(Reporting by Emma Rumney; Editing by David Gregorio)

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Natalee Broderick

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