Africa Fighting Competing Interests in Funding Quest

Africa’s economic managers are staring at a bleak future as they try to mobilise funds to buy vaccines and increase government spending that is needed to reduce poverty and mitigate the economic shocks caused by the coronavirus pandemic.

This week, African Finance ministers pleaded with international lenders including the International Monetary Fund to do more to mobilise concessional financing with longer maturity terms to help countries recover faster as the continent grapples with a recession.

Countries are pushing for more funds to be accessible and lending to be sustained for at least five years under the IMF’s Poverty Reduction and Growth Trust (PRGT) facility which provides zero interest loans for up to 10 years.

The first annual review of PRGT finances is expected before the 2022 Spring Meetings of the IMF and World Bank.

This would give room to countries to spend more to boost economic recovery.

While rich countries have reopened their economies after successful vaccination campaigns, Africa is still lagging behind due to limited access to vaccines and finance that is urgently needed to foster economic recovery.

As of September 24, while more than 40 percent of the world population had received at least one dose of a Covid-19 vaccine, only about four percent of the African population is fully vaccinated, according to the Africa Centres for Disease Control.

“We are asking for more resources to respond to the current economic situation resulting from the coronavirus pandemic and climate change,” said UN Under-Secretary General and Executive Secretary of the United Nations Economic Commission for Africa (UNECA) – Vera Songwe, this week at a virtual meeting with African Finance Ministers and the IMF.

Last year, UNECA launched the Liquidity and Sustainability Facility to reduce borrowing costs by increasing demand for sovereign bonds. This, Ms Songwe says, could save Africa $11 billion of interest on loans in five years.

But now African countries have temporary relief as they can access the IMF’s reserves – Special Drawing Rights (SDRs) — to cushion their reserves.

But this is still a drop in the ocean compared to their ballooning financing needs. For one thing, how much money they can access from the IMF under the SDR allocation is determined by their quotas which is largely in proportion to the size of their economy.

The whole continent is only eligible for approximately five percent or $33 billion of the total $650 million allocation approved in August.

Yet even at $33 billion, the largest share belongs to the biggest economies (Nigeria, South Africa, Egypt, Morocco).

Now, Africa must aggressively lobby rich countries to make available their $129.7 billion of their unused SDRs in the form of loans.

The other challenge is that they must be in the good books of the largest shareholders of the IMF reserves – the US and China.

For instance, the Trump administration had blocked the recent special issuing of SDRs.

This week, Kristalina Georgieva, the IMF Managing Director said her Institution is exploring additional options to help poorer and more vulnerable countries in their recovery efforts through potential SDR channeling.

Between mid-March 2020 and mid-September 2021, the IMF approved 66 requests for financial support to Africa, of which 52 requests were from low-income countries.


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Author : East African

Publish date : 2021-10-03 14:19:13

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