The writer is Ghana’s minister for finance and outgoing chairman of the Development Committee of the IMF and World Bank
Ghana confirmed its first two Covid-19 cases on March 12, imports from Norway and Turkey. Africa has since recorded more than 1.5m cases and counting, though in terms of infections and deaths, we have fared better than most regions. Perhaps this is because of our youthful population, the natural social distancing of outdoor living and experience with infectious disease management — helped by good leadership.
Our economies, however, have not been spared. Across the continent, governments are facing falling revenues, rising expenditures, increasing debt distress, and significant reversals in development indicators. In an omen of what is to come, Zambia now appears headed for the continent’s first pandemic-related private debt default. The human costs are tremendous. Up to 39m people are expected to slip below the poverty line.
The past six months have brought laudable interventions from multilateral institutions and the G20 countries. The G20 moved quickly to establish a debt service suspension initiative, which has secured deferrals of some $5.3bn in debt service payments. The IMF has approved more than $25bn in emergency funding to Africa, and the World Bank fast track Covid-19 programme is providing $160bn.
As we approach the World Bank and IMF fall meetings this week, much more needs to be done. The IMF’s lending capacity should be doubled to $2.5tn. European countries have some $260bn in special drawing rights for which they have little use and could easily lend on to African countries. The US is opposing the issuance of new SDRs altogether.
Meanwhile, China is negotiating with Africa on a country-by-country rather than continental basis, which is blocking progress. That makes western creditors reluctant to offer concessions for fear that released resources will simply be transferred to Beijing. Some of China’s state-owned financial institutions are not officially included in the G20 debt suspension.
Still, China is an important partner in Africa’s infrastructure development, with more than $148bn of loans to the continent. Private creditors and the Institute of International Finance, which represents banks and insurers, have remained conspicuously silent, even as the predicted defaults start.
African finance ministers have asked for an extended debt standstill of two years; $300bn in highly concessional new financing over three years to accelerate economic recovery; the structuring of a credit enhanced special liquidity and sustainability facility to make it cheaper and easier to access the capital markets; and a debt relief and cancellation programme for vulnerable countries.
That may sound like a lot, but on a global scale, African demands are a drop in the bucket. The G20 countries have already spent more than $10tn on recovery and economic stimulus packages for their own economies. Africa’s request is less than 3 per cent of what OECD countries have spent so far to safeguard their own economies from the pandemic.
Where is the fierce urgency for change in a global event of this scale? We must all ask, as does the parable of the good Samaritan in the Bible: “If I do not stop to help this man, what will happen to him?”
We must use this opportunity to engineer a tectonic shift of the global financial architecture. That requires ambitious reforms to address fundamental inequities in the global financial system. Africa continues to pay an unsustainable risk premium of some 600-800 basis points for its debt and insurance, costing Africa more to borrow than it should. This is not justified by Africa’s modest record of default. In addition, each year $50bn in illicit financial flows leaves the continent, an indictment as much of western investors and financial centres as of African corruption.
African nations cannot wait for others to act. We must take the lead by establishing a secretariat to co-ordinate the varied interest groups and centres of power to propose a restructuring of the global financial architecture. That body must then seek to work with the G20, World Bank, IMF and UN, to make it fit for purpose for Africa and other developing countries as we navigate the post-Covid-19 recovery. Africa is not asking for charity. It is asking for equity.