African governments are unable to finance the $2.8-trillion needed for climate responses beyond the 10% of costs, or $250-billion, they have already committed as of 2022, owing to existing high levels of public debt.
However, public finance management transformation can help to correct these countries' fiscal trajectories, free up domestic capital for the climate agenda and create transparency and confidence around the management of fiscal funds that international funders will look for, management advisory and services company PwC Africa states in its 'Implementing Green Public Finance Management in Debt Distressed Countries' report.
The remaining $2.5-trillion is what the region needs to implement climate action commitments and achieve Nationally Determined Contributions. This figure is equal to the value of total gross domestic product during 2022 in sub-Saharan Africa, says PwC Ghana assurance, government and public services leader Hayfron Aboagye.
In 2022, total public debt across the region equalled $1.1-trillion, which is more than double what it was in the preceding decade. Concerningly, some 22 sub-Saharan African countries were in, or at high risk of, debt distress as of May 2023, notes PwC South Africa public sector and infrastructure transformation capability leader Craig Kesson.
“There are several key areas where governments can take action to increase revenue and reduce expenditure towards narrowing fiscal deficits and reorientate their approach to debt management.
“Debt restructuring, reprofiling and relief options are high on the agenda at present, as many countries globally face crippling debt obligations in the wake of the fiscal challenges brought on by Covid-19.”
Innovative restructuring options include debt-for-climate swaps, which is a mechanism that provides support to both budgetary relief as well as finance climate mitigation, and adaptation action. The Seychelles is the first country to complete a debt-for-climate swap specifically aimed at protecting its oceans, he says.
Major bilateral and multilateral creditors are also moving towards including climate-resilient debt clauses into their financing deals that would allow debt repayments to be suspended when climate shocks disrupt supply chains and business operations, Kesson highlights.
“African governments need to fix their public finance management now to ensure they are ready and have more mature finance structures to effectively engage with international financiers when more climate funding becomes available,” says PwC Southern Africa international development leader Nasreen Mosam.
Additionally, PwC is also advocating for green public finance management, which is the integration of a climate-friendly perspective into public finance management practices, systems and frameworks with the objective of promoting fiscal policies that respond to climate concerns.
“Citizens and lenders are demanding more from governments to improve and enforce public finance management laws and systems, and a transition to accrual accounting is seen as a crucial tool for achieving fiscal transparency,” says Aboagye.
Further, governments and relevant public sector institutions also have to enhance their readiness for green financing through the development of clear policies and strategies that align with national climate and environmental goals, as well as attracting private capital through green financing, he notes.
“It is crucial that sub-Saharan African governments prepare themselves to achieve the national goals they have adopted to address the region’s economic, social, technological and climate challenges. The international development community plays a key role in supporting this,” he emphasises.
“By understanding the financial cost of the climate challenge, now and in the future, and developing strategies to work around current public debt burdens, financing climate initiatives within the region will be possible sooner, rather than later,” Aboagye says.
Sub-Saharan Africa has a lower carbon intensity than the global average and that of the Group of 7 bloc of developed nations. The region also contributes only 3% of global greenhouse gas emissions. However, despite this smaller emissions footprint, sub-Saharan Africa is the most vulnerable region globally to the adverse effects of climate change.