Government leaders and experts from across Africa who have gathered in Cabo Verde have said the continent will need the right financing mechanisms after Covid-19, so that it does not emerge from the pandemic losing more than a decade of efforts to strengthen its economy and human capital.
Speaking to the media on Thursday after the 2021 African Economic Conference opening ceremony, Nicolas Kazadi, Finance Minister of the Democratic Republic of Congo, echoed the call for developed countries to redirect Special Drawing Rights (SDRs).“We advocate for countries, particularly rich and developed countries, to redistribute their portions of SDRs from the International Monetary Fund(IMF) to countries that desperately need them.”
SDRs are supplementary foreign exchange reserve assets defined and maintained by the IMF. These assets can be freely traded for hard currency to pay for imports or any other type of government expense.
This year in August, the IMF Board of Governors approved a historic allocation of SDRs worth US$650 billion.
However, because of existing IMF rules which dictate that SDRs are allocated based on the size of a country’s economy, and not on what is needed to address a crisis, rich countries ended up receiving the largest share of reserves.
Poorer countries, especially those in Africa, were left with only a tiny portion that was not enough to finance most of the continent’s fiscal and other needs.
For instance, high-income countries received nearly US$400 billion worth of the SDRs, with medium-income countries (MICs) receiving US$230 billion and low-income countries (LICs) just US$21 billion.
The motivation for the allocation, in the words of the IMF, is to “help our most vulnerable countries struggling to cope with the impact of the Covid-19 crisis,” having a large chunk of the SDRs sitting idle on the balance sheets of high-income economies, is unhelpful to say the least.
As the continent struggles to emerge from the pandemic, Olavo Avelino Garcia Correia, the Finance Minister of Cabo Verde, insisted that small countries like his should not be discriminated against if they are to successfully drive their economies post the pandemic.
“Cabo Verde is a small island nation that has been highly impacted by the Covid-19 pandemic, but at the same time it is a middle-income country which means there are restrictions in access to international financing. We hope we won’t be discriminated against as a result of this status,” he noted.
Under most international rules, middle-income countries, regardless of their size, tend to have limited access to structures and financing mechanisms meant to support small and poorer countries during crises.
A case in point is the IMF’s Poverty Reduction and Growth Trust (PRGT), a vehicle for zero-interest loans to low-income countries. Most African countries have had access to the PRGT, but this has not been enough to satisfy their financial needs.
Ahunna Eziakonwa, Assistant Administrator of the UNDP and Regional Director for Africa, emphasised that the narrative portraying Africa as a continent of problems needs to change. It should rather be seen as a continent of solutions for the rest of the world. “Africa should first understand where its resources are and how to leverage that. In our efforts to support countries, we have an initiative called the integrated national financing framework. This is an effort to identify public and private resources that can be pulled together in addressing fiscal stress that countries are facing,” she said.
Eziakonwa also highlighted the need for African countries to integrate regional value chains, saying if the continent is to survive, it must be able to trade with itself. “Africa should come together as one region on its trade journey. We are encouraging leaders to take AfCFTA (African Continental Free Trade Area) seriously.”
AfCFTA is an agreement endorsed by African countries aimed at integrating the continent into one single trading bloc. The agreement officially came into force in January this year, opening a window for countries to freely trade amongst themselves.