African central banks discuss climate change and role of the financial sector

The Association of African Central Banks (AACB) recently convened to address the impact of climate change on food security and inflation in Africa, as well as the financial sector’s role in supporting agriculture and the green economy.

During the three-day meeting held earlier this month in Yaounde in Cameroon, central bankers focussed on identifying the main climate-related shocks in Africa and the threats they pose to food security and inflation. The 40-member association highlighted the strong relationship between food production and climatic conditions, resulting in high exposure to inflated prices.

According to the World Bank, food inflation across 16 Middle East and North African economies increased by 29% between March and December 2022. Additionally, 21 out of the 54 African countries experienced double-digit inflation in 2022.

Saliem Fakir, executive director of the African Climate Foundation, closely followed the conference and applauded how central banks in the region are considering the links between their mandates and managing climate-related risks, including the rising impacts on food security.

Speaking to Green Central Banking, Fakir said central banks play a key role in facilitating the management of climate-change related risks “by leading the macroeconomic modelling of climate-related financial risks and by engaging with the financial sector to encourage further considerations by the public and private sectors of proactive measures which could reduce both financial stability risks and food insecurity in the future”.

Although Africa contributes only 3 to 4% of global greenhouse gas emissions, it disproportionally suffers from the escalating effects of climate change. Consequently, adaptation finance plays a crucial role for African central banks, as highlighted by the latest IPCC report.

The report emphasised the financial disparity between developed and developing nations as the main obstacle to effective mitigation and adaptation efforts. It also highlighted the cost effectiveness and significant social benefits of providing funding to vulnerable regions like sub-Saharan Africa, particularly in terms of improving access to basic energy.

Raising adaptation and transition finance has been encouraged by the issuance of green bonds. In recent years, Mauritius issued its first green bond and Kenya initiated its green bond programme in 2017. Moreover, the African Development Bank (AfDB) recently issued a five-year green bond worth 1bn Norwegian krone to support its green bond programme aimed at facilitating the transition to green growth in African countries.