The African Development Fund Replenishment and the Resource Curse of 2025

The African Development Fund (ADF) launched its replenishment negotiations in March, amid sharply declining donor resources and significant economic headwinds. The ADF is the arm of the African Development Bank (AfDB) that supports the region’s 37 poorest countries, and alongside the World Bank’s International Development Association (IDA), is a vital source of affordable finance for sub-Saharan Africa. This is a time of extreme hardship: most ADF countries are facing heavy debt burdens and have limited fiscal space to support critical development goals, challenges that will be compounded by the US action on tariffs. The ADF needs to be replenished every three years, and in 2024, AfDB president Akinwumi Adesina urged shareholders to support a highly ambitious target of $25 billion for ADF 17, up from $9 billion for ADF 16 (which included $429 million for a new climate action window). Now, even meeting ADF 16 targets would represent a major victory because the ADF’s key donors are expected to reduce their pledges, potentially by significant amounts. Shoring up support for ADF will be an immediate task for the next AfDB president, who will be selected in late May and take office in September.

In this paper we outline the fundraising challenges facing the ADF and discuss the limited menu of options for navigating the current donor environment. Our key finding is that the ADF may need to harden lending terms in order to sustain lending volumes, despite high levels of indebtedness among ADF countries.

The economic outlook is clouded with uncertainty

In 2022, ADF management pressed for a record replenishment in the context of a bleak economic environment due to COVID-19, high debt levels (20 ADF countries were in or at high risk of debt distress), rising costs associated with the impact of climate change, and the impact of Russia’s invasion of Ukraine, which led to a surge in food and fertilizer prices.

The economic outlook has not meaningfully improved since then, and the imposition of US tariffs presents a major new risk factor. Thirty-two countries that had been enjoying duty-free access to US markets under the African Growth and Opportunity Act now face 10 percent tariffs, with the potential for much higher rates after the 90-day pause expires. Among the hardest hit would be those that depend on apparel exports to the US as a significant source of revenue, like Lesotho, Madagascar, and Mauritius. The risk of collateral damage in the form of job losses and slower growth is especially worrying in the context of declines in net private flows, down more than 64 percent compared to 2022 and 93 percent compared to 2021. (See Figure 1.)

The donor response to ADF 16 will be tough to match

ADF 16 was the largest replenishment to date, mobilizing over $8.9 billion, including $429 million for a new climate window. Compared to IDA, which reached $100 billion at its most recent replenishment (thanks largely to internal resources), the ADF is small. But it is highly valued by its African borrowers.

One challenge for the ADF is the concentration of donors. Although 32 countries pledged to ADF 16, just four of them accounted for 45 percent of the donor commitments to the fund, or 28 percent of total resources.

Despite a compelling case for a robust ADF 17, commitments from top donors are expected to fall owing to a reallocation of resources towards defense budgets in the UK, Germany, and France, and a shrinking aid budget in the US.

Worryingly, it is possible that the US might not pledge to ADF 17 at all. Like ADF 16, focus areas for the current replenishment will likely include climate change and the empowerment of women and girls, an agenda that the Trump administration is primed to reject. The near-complete eradication of USAID programs in Africa is also an ominous sign. Unfortunately, these factors could result in an ADF 17 replenishment that falls well short of ADF 16 levels, as shown in Table 3 .

Under this admittedly pessimistic scenario, the ADF would face a $895 million shortfall relative to the last replenishment, unless other donors step up. Filling this gap would be hard: in ADF 16, the top four donors each pledged more than $500 million, accounting for $2.4 billion of the total. The next six largest donors combined pledged $1.27 billion while the six smallest donors together pledged only $27.5 million (see Figure 2). The ADF’s best bet is to encourage rising donors like China and Korea, which pledged $144 and $104 million respectively, to pledge significantly more. Norway and Sweden, which each pledged close to $250 million, might also be enticed to increase their contributions. But with so many countervailing forces, including a potential global economic downturn, it will likely be hard for the ADF to raise more than an additional $300-$500 million from other donors.

There is no (good) Option B

In the face of a donor shortfall, the ADF’s options are limited. We have identified four ways the ADF could help sustain lending volumes : expanding donor options, appealing to nontraditional donors, issuing debt, and doubling down on aid effectiveness. We discuss the options below but would note at the outset that there are downsides to each of them, and several are only possible over the medium and long term.

Expanding donor options (short term)

The ADF’s 37 recipients are divided between grant-only countries and those eligible for loans. Countries that are in or are at risk of debt distress (e.g., red light countries) receive 100 percent grants. Yellow light and green light countries (at moderate and low risk of debt distress respectively) access concessional loans. Terms depend on whether countries are designated as ADF-only, gap, or blend:

• ADF-only countries have per capita incomes below the $1,335 cut off point.
• Gap countries are those above the $1,335 per capita cut off point for ADF access but are not creditworthy enough to access regular resources.
• Blend countries are those below the cutoff point but deemed creditworthy enough to borrow from both the ADF and the AfDB.

ADF-only countries are themselves divided into sub-categories to determine borrowing rates. Countries with a GNI per capita above the average of all ADF-only countries are put in the “advanced” group, while all countries with a GNI per capita below the average are put in the “regular” group. Only green light countries receive advanced and regular terms, so currently *no* countries are eligible for these loans. For the ADF 16 replenishment, 13 countries are grant-only, 19 are receiving concessional loans and grants, and 5 are eligible for both ADF and AfDB resources.

If countries’ macroeconomic situations were stronger, the ADF could harden terms for yellow and green light countries to sustain current lending levels. But at a time when most recipients are red light countries, the ADF little room to maneuver. Unfortunately, some upward pricing adjustments may be inevitable.

To stretch resources in ADF 16, management agreed to replace grant funding for yellow light countries with new concessional loans on extremely generous terms: 50-year tenor with 10-year grace periods at no interest. The subsidy element of these loans is 62 percent (versus 100 percent for grants), enabling the ADF to increase volumes. This change also meant that donors could provide a portion of their pledges in the form of concessional partners loans (CPLs), instead of grants. 

In today’s environment, providing 100 percent grants for all red-light countries may no longer be feasible. Instead, the ADF could consider a new category of 50-year loans with a 15-year grace period for some red light countries (compared to 10 years for yellow light countries). The longer grace period would give countries more time to improve their fiscal positions, while enabling higher allocations to those countries now when they desperately need funding to support growth-generating investments. This assumes that debt burdens will be more sustainable in 15 years, which is by no means guaranteed, but would enable higher allocations to those countries now when they desperately need funding to support growth-generating investments, which seems like a worthy trade-off. Without more resources, ADF countries will remain mired in a high debt-low growth trap. As heretical as this proposal sounds, it was seriously considered (but rejected) during the most recent IDA replenishment negotiations. But in the current environment, donors may come to a different conclusion for ADF.

This option would enable more donors to offer concessional partner loans (CPLs) with subsidy elements equivalent to the new offerings, potentially increasing donor appetite and the size of the ADF envelope. In ADF 16, only two countries—Japan and Finland—provided CPLs. Together they totaled $400 million, with a grant component equivalent to $240 million. CPLs are an appealing option to many donors, but because so many ADF countries are grant-only recipients, only a small percent of the total donor pool can be mobilized this way. A potentially new option would be to ask the most creditworthy donors to guarantee ADF loan repayments. The advantage of this approach is its flexibility: guarantees can be provided by sector, by country, by category (e.g., yellow light only), and/or time period. While the portfolio of countries being guaranteed would be high risk, this factor should be offset by the ADF’s preferred creditor status, which has enabled an outstanding repayment record to date, with only one country (Zimbabwe) currently in default. This would free up the resources that the ADF would otherwise need to provision for the loans, providing more funding for recipient countries. The Asian Development Bank has successfully pioneered the guarantee approach to bolster climate-related funding, although eligibility is limited to creditworthy countries.

Nontraditional donors (short, medium and long term)

In the context of shrinking official development assistance budgets, development banks and funds that depend on external resources are increasingly appealing to nontraditional donors, especially philanthropies. Organizations like the World Health Organization, Gavi, and the Global Fund have attracted billions in philanthropic capital but for multilateral development banks (MDBs) this money is hard to come by, chiefly because they tend to prefer sector-specific funds (e.g., health or climate).

The ADF encouraged philanthropies to donate to the climate action window (CAW) during ADF 16, but none came forward. In November 2024, the ADF issued a call for proposals and now has a pipeline of bankable projects that other donors may be willing to fund on a case-by-case basis.

The ADF could also try to attract new official donors like Australia and the UAE, who are not currently part of the ADF donor pool, but even if successful this option would likely not be feasible before the next replenishment.

Market borrowing (medium and long term)

Unlike IDA, the ADF has never used its equity to back debt issuances because its equity base is small, and its borrowers are high risk. Nevertheless, ADF management and shareholders began considering this option during ADF 16 and now intend to move ahead in 2026-27 during ADF 17.

Issuing debt can only be done with an amendment to the ADF charter, which requires approval from 85 percent of shareholders—a potentially heavy lift. If the change is approved, the ADF estimates it could leverage between $4-5 billion per replenishment. This would represent a substantial increase in the size of the ADF but with a notable caveat: the resources would be on market terms. This means the ADF would need additional grants to buy down the terms (e.g., 62 cents on the dollar). And even if enough funds could be found to meet concessional loan terms, only yellow light countries would have access to them.

Donors could ask the ADF to set up a Scale Up Facility, as IDA has done. IDA’s Scale-Up Facility provides resources on non-concessional (IBRD) lending terms which are additional to the regular concessional resources that countries receive from the performance-based allocation system (PBA). However, only countries at low or moderate risk of debt distress would have access the facility, limiting the ADF’s eligible country pool to 15.

Doubling down on aid effectiveness (medium and long term)

The ADF should also focus on aid effectiveness as a way to garner more donor support. Historically, donors have been substantially more generous to IDA, committing $23 billion in grants for IDA 20 versus $5.4 billion to ADF 16. Donor pledges to ADF are smaller because it is a regional versus global facility (with substantial overlap) and because they have concerns about capacity constraints, with some justification. A 2022-23 evaluation by the Multilateral Organization Performance Assessment Network (MOPAN) scored the African Development Bank well on many fronts (e.g., strong and effective client relationships), but project implementation was a notable exception. (MOPAN is a network of donors that assess the performance of MDBs by surveying recipient country perspectives.) In its last mid-term review, ADF acknowledged that the pace of implementation remains slow, with 32 percent of projects facing performance challenges and delays.

In many instances, delays reflect capacity limits in recipient countries. But the ADF has its own weaknesses, including a notoriously slow and complex procurement process, even for simple transactions (e.g., hiring consultants). The incoming president should follow the World Bank’s lead in prioritizing reforms needed to make the ADF a more efficient partner.

The ADF’s allocation system also warrants a closer look. Currently, most ADF resources are directed to countries based on its PBA. In addition, resources are allocated to a regional envelope, the project preparation facility, the private sector facility and the Transition Support Facility (TSF), which provides additional resources for fragile and conflict states.

The PBA is designed to allocate resources to high-performing countries based on indicators of economic management, structural policies, social inclusion, governance, infrastructure, and regional integration. These performance indicators are combined with a needs component (population, per capita GNI, and African Infrastructure Development Index), to determine resource envelopes for each ADF country. Because this formula is likely to disadvantage fragile and conflict states, other initiatives have cropped up to increase their allocations, including the TSF at the African Development Bank and a fragility, conflict and violence envelope for IDA. So in a sense, these two facilities are at odds with each other.

To inform future allocation decisions, knowing more about the impact and sustainability of ADF projects under these different facilities should be high on donors’ to-do list. The bank currently provides annual development effectiveness reviews which evaluate impact across its five priority areas (Light Up and Power Africa, Feed Africa, Industrialize Africa, Integrate Africa, and Improve the Quality of Life for the People of Africa). But what donors should press for is an evaluation of whether outcomes in ADF countries correlate with the PBA scoring, since this assumption is what drives most allocation decisions.

Finally, the ADF needs to make a case for the Private Sector Credit Enhancement Facility, which is very difficult to track due to the lack of any public information, including a dedicated website. According to its 2024-2033 strategy, the AfDB plans to “transform the Private Sector Credit Enhancement Facility to provide services for third-party projects, deepen its suite of instruments, and expand its areas of coverage to include fragile areas in non-ADF countries.” This implies a growing resource envelope, which in the current environment could only be justified with a compelling theory of change based on strong evidence.

An existential crisis that must—and can—be overcome

In 2022, ADF management observed that “given the scale of needs facing ADF countries, the ADF at steady state risks falling into irrelevance.” Despite the extraordinary needs of ADF countries, this threat is even greater now. But make no mistake—this is a matter of bad luck and bad timing; it is not a reflection on the ADF, which remains a partner of choice for sub-Saharan African leaders. It also gets high marks for transparency, aggregate results measurement and reporting, regional integration, and PPP infrastructure.

The ADF also remains a great deal for donors. In its annual requests to Congress for ADF 16 funding, the US Treasury noted that $1 in US contributions would catalyze nearly $16 in contributions from other donors and internally generated resources. Moreover, this fundraising challenge could be resolved if donors were willing to reallocate assistance from bilateral to multilateral organizations, as my colleagues argued for IDA.

Unfortunately, these factors are unlikely to counter an inhospitable fundraising climate, compelling the ADF to make some hard choices. Chief among them is whether it can still afford to be such a generous provider of grants. In development, giving loans to heavily indebted countries is something of a third-rail issue, but facing it head on is unavoidable, especially if the trade-off is significantly more funding.

Going forward, the ADF will also need to strengthen its case to donors, including through a focus on delivery, impact, and sustainability. The ADF should also aim to reduce reliance on a small set of funders by further diversifying its donor base. Campaigning nontraditional donors for direct financing is probably a futile effort but seeking them out for co-financing opportunities is well worth doing if it means more development financing overall.

Finally, the ADF replenishment will be a test of leadership for the new president, who will only have a few months after the job begins to be an effective champion. This needs to be a top priority.