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Room to Run Guarantee

It is normal practice, when a Government Department proposes to undertake a contingent liability in excess of £300,000 for which there is no specific statutory authority, for the Minister concerned to present a departmental minute to Parliament giving particulars of the liability created and explaining the circumstances; and to refrain from incurring the liability until 14 parliamentary sitting days after the issue of the statement, except in cases of special urgency.

I have today laid a departmental minute outlining details of a new liability (the Room to Run Guarantee) which FCDO plans to undertake in order to guarantee a US$1.6 billion (£1.23 billion at the current exchange rate) portfolio of African Development Bank loans.

The African Development Bank (AfDB) is Africa’s premier regional financial institution. It is a well-respected Multilateral Development Bank which lends to 50 countries and the private sector within Africa. The UK is a long-term AfDB shareholder.

The UK is creating this new liability for two reasons. Firstly, to meet a clear climate financing need. Africa has large and growing financing needs for clean and green development. It is estimated that $3 trillion is needed to implement Africa’s climate strategies over the next ten years. Secondly, to support the AfDB. The economic impact of the pandemic has constrained AfDB’s capacity to lend to member countries. This guarantee would allow the AfDB to continue to prudently increase its lending capacity at an important time.

The liability is expected to last for up to 15 years. FCDO would only pay Official Development Assistance if a default occurs and if first loss cover provided by the African Trade Insurance Agency (ATI) is exhausted. The Departmental Minute sets this out in detail.

HM Treasury has approved the proposal. If, during the period of 14 parliamentary sitting days beginning on the date on which this minute was laid before parliament, a Member signifies an objection by giving notice of a parliamentary question or by otherwise raising the matter in parliament, final approval to proceed with incurring the liability will be withheld pending an examination of the objection.