IMF should issue special drawing rights as grants to Africa
May 4, 2020
By Thomas Boni Yayi*
Since the start of the Covid-19 health crisis, the global economy has been grounded in one quarter with a likely annual growth forecast of -3% in 2020, according to the International Monetary Fund (IMF).
In Europe, taboos are falling. On March 20, 2020, the European Commission announced an unprecedented suspension of budgetary discipline rules. Ongoing negotiations between heads of state and government over a new stimulus package to prevent economic disaster is estimated to be around €$1 trillion. The European Central Bank (ECB), for its part, in its will to do “everything necessary within the framework of its mandate to help the eurozone to overcome this crisis”, announced €$1 billion in massive assets buyouts in the financial markets throughout 2020.
The United States has responded to the economic devastation caused by the coronavirus with the largest economic relief programme in its history, at $3 trillion. At the same time, the US Federal Reserve (The Fed) has indicated its willingness to buy an essentially unlimited amount of public debt – a very aggressive programme of financial instruments buybacks by the end of 2020 of nearly $3 billion.
With regards to economic solutions adapted to Africa, I think there are essentially two challenges which need to be separated: first, that of mobilizing new resources to finance the response to the virus crisis; then the cancellation of Africa’s debt as part of a strategic partnership without undermining the attractiveness of the continent.
Consequently, I suggest that the IMF, in addition to the first aid package already distributed to some African states, should issue Special Drawing Rights (SDRs), to the tune of €114 billion, which corresponds to the needs of the African continent according to indications provided by the Managing Director of the IMF, Kristalina Georgieva, to enable Africa – whose central banks do not have the same capacity to respond as those of China, the United States or the euro zone – address the negative impact of this health crisis as quickly as possible.
We will either triumph, or perish, together. Therefore, Africa cannot and should not be left on the margins of the various measures supported by central banks in Europe, the Americas or Asia. This IMF assistance, through the issuance of SDRs will be convertible with central banks such as the Fed, the ECB, the Central Bank of Japan and the Central Bank of China, determined to support African states to tackle this COVID-19 crisis. This support will allow the strengthening of the external assets of African central banks whose capacity in relation to their long-term commitment does not cover more than 4 to 5 months of imports.
The overall needs of the African continent can be assessed on the basis of regional economic communities and the use of resources must be done in strict compliance with the good governance prescribed by the African Peer Review Mechanism (MAEP).
These investment requirements relate to the modernisation of hospital infrastructure, precautionary measures, treatment, education and skills’ training of hospital staff, not to mention social protection for citizens, economic recovery, price stability and the reduction of unemployment.
With regards to the cancellation of Africa’s debt, the speed required to manage the economic crisis caused by the coronavirus cannot be hampered by issues that have always aroused the hesitation of the creditor states. While recognizing the correctness of this request and referring to the reluctance of the G20 to stick to the one-year moratoriums on the payment of debt service, I welcome the initiative of the African Union to set up a committee which, in addition to the fight against the COVID-19 pandemic, would give impetus to Africa’s request for debt cancellation.
In the 1990s, Africa already benefited from the HIPC (Heavily Indebted Poor Countries) initiative with the cancellation of bilateral and multilateral debt. This initiative cast doubt on the solvency of the continent. This second request for cancellation would probably merit negotiations at three levels: at the level of multilateral institutions, at the level of States and at the level of the private sector.
If this request were to be taken into account, would it not raise some questions at the level of multilateral banks? A cancellation of their receivables will have an impact on their creditworthiness. At the state level, negotiations are possible but it is the same creditors who feed multilateral institutions. The question is whether a country like China, a member of the G20, is prepared to cancel its debt on the continent, which is 40% of Africa’s debt – and about $360 billion. Finally, in the private sector, there is the question of who will reimburse them?
These are obstacles that will take a long time while the treatment of this virus requires speedy action to be taken to contain the human and economic devastation. We will certainly end up with treatment on a case-by-case basis.
In conclusion, I suggest an emergency issuance of Special Drawing Rights for Africa by the IMF, which already involves the main contributors to IMF resources. Only genuinely united and globally coordinated management of this health crisis can save humanity. We are no longer at the stage of making promises. We must stop the mass deaths we witness on a daily basis and revive economic activities.
*Courtesy of Daily Trust.Dr Yayi is former President of the Republic of Benin, former Chairman in Office of West African Economic and Monetary Union, and former President of the African Union-AU
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