July 2019 Summit of the African Union: Jump-starting the African Monetary Fund

African Union (AU) leaders will gather in Niger on 7 July for an Extraordinary Summit to discuss the African Continental Free Trade Area (AfCFTA). They will be meeting at a critical moment for the continent. Africa, which is experiencing uneven growth and rising debt sustainability problems and is facing an uncertain global environment, needs the boost that closer and more dynamic continental trade relations could deliver.

In advance of the July 7-8, 2019 Summit of the African Union in Niger, researchers from the Global Development Policy Center and the Centre for Human Rights at the University of Pretoria, South Africa, outline three concrete steps to jumpstart the African Union’s drive to create a regional financial arrangement. In a new policy brief, ‘Jumpstarting the African Monetary Fund,’ the authors call on African Union leaders to use their meeting to reinvigorate their efforts to create an African Monetary Fund. An operational African Monetary Fund would encourage African states to engage more actively in regional trade by offering them financial support for managing the risks associated with closer regional integration and expanded intraregional trade.

The African leaders signed a treaty to establish this fund in 2014. Unfortunately, progress towards its entry into force has stalled. The treaty has been signed, but not ratified, by eleven AU member countries to date. Fifteen member countries must ratify the statutes for the African Monetary Fund to become operational. Once operational, the African Monetary Fund will have a capital subscription of up to US $22.64 billion and the ability to provide member countries with loans equivalent to two times their contributions to the Fund’s capital.

The AfCFTA offers states new growth and employment opportunities. But by increasing economic linkages between African states, it may also increase the risk that economic problems in one country will have a strong negative effect on growth, trade, investment and employment in other African states. In their policy brief, the researchers argue that the African Monetary Fund could provide a much needed regional buffer.