The African Development Bank Group has approved a policy document on the Accelerated Repayment and Voluntary Prepayment of ADF Loans.
Under the policy approved by the African Development Fund (ADF) Board in Tunis on Wednesday, April 2, 2014, the Fund will introduce an accelerated-repayment clause in all new loan agreements starting in ADF-13, and establish a framework for the voluntary prepayment of ADF loans.
The accelerated repayment mechanism aims to redirect limited ADF development resources from the Fund’s more economically successful, graduated member countries , to those with greater development challenges.
After due consideration, and taking stock of the outcome of an in depth review on the economic impact of the measure, the Board of Directors of the Fund can require member countries that fulfil the criteria for graduation to accelerate the repayment of their ADF loans. Member countries can then opt to either:
- a doubling of their semi-annual principal reimbursements, until the loan is fully repaid (the Principal Option);
- an increase in the service charge applicable to the loan to a rate that achieves the same level of concessionality as the Principal Option (the Interest Option);
- under certain conditions, a combination of both the principal and interest options (the Combination Option).
A framework for voluntary prepayment is also introduced to complement the accelerated-repayment clause, by enabling and encouraging the prepayment of ADF loans that currently do not contain the acceleration clause. This framework allows the Fund to offer financial incentives to graduated countries when they decide to prepay their ADF loans. These incentives can take the form of either (i) a discount on the amount to be prepaid, or (ii) a subscription credit to an ADF replenishment.
“These proposals will result in faster future repayment of ADF loans, and an enhanced financial capacity for ADF, ultimately benefiting the neediest countries in Africa,” Treasury Director Pierre Van Peteghem told the Board.
Some of the ADF graduated countries that could volunteer to prepay outstanding ADF loans include Egypt, Equatorial Guinea and Angola.