12 February 2020
The UNECA, IMF, and African Finance Ministers met on 5th February to discuss the debt crisis affecting the continent amidst the global covid-19 pandemic. The meeting sought to explore easing the fiscal constraints crisis by transforming existing liquidity instruments and easing market access to alleviate the debt burden by providing much needed liquidity for the continent’s economies.
The meeting came in the wake of several African countries lining up to restructure their debts under the G20 Common Framework. Countries like Chad, Ethiopia, Angola, Kenya, and others who are set to begin the restructure of their debt is a clear demonstration of the depth of this current debt crisis. AFRODAD welcomes the call by ECA’s Executive Secretary, Vera Songwe for additional liquidity through issuance of “$500 billion in Special Drawing Rights (SDR), better market access, more concessional resources and an extension in the Debt Service Suspension Initiative (DSSI), given the prolonged nature of the pandemic”. The issuance of the new SDRs is a significant addition to efforts already in place which do not go as far enough in addressing the root causes of how African countries have found themselves in this situation.
During the meeting, Ghana’s Minister of Finance and Economic Planning Honourable Ken Ofori-Atta called for the extension of the DSSI to 24 months instead of the current 6 month proposal to June 2021. The debt service suspension does not address the debt crisis, it just postpones the problem. Africa needs a debt resolution mechanism that addresses the legality, legitimacy, and sustainability of debts. The DSSI only covers small percent of debt payments due in 2021 by all developing countries. Middle income countries are left out of this initiative yet they are also fighting the pandemic. The DSSI lacks the participation of private and multilateral lenders and money freed up under the DSSI may effectively be used to repay private and multilateral debts instead of funding the response to the Covid-19 crisis.
In welcoming Ms. Shongwe’s call for the $500 billion in SDRs, we further call on the UNECA and AU to be more ambitious in seeking SDR issuance from the IMF and a more sustainable debt solution that reforms the global financial architecture. Together with global civil society, AFRODAD calls for new issuance of $2 trillion in special drawing rights currency (SDRs) or equivalent of US$3 trillion as part of the existing debt relief measures to developing countries. These new allocations would ease fiscal constraints and enable African countries to invest in protecting the citizens against the economic contraction while supporting the increase of health spending on tests, protective equipments, treatment, vaccine procurement and investment in strengthening healthcare systems.
It is encouraging to note that IMF Managing Director, Kristalina Georgieva said that “now is the moment to demonstrate that SDR allocation can be part of a comprehensive support framework, together with debt reduction, debt relief and policy support actions in the countries,” African countries need urgent access to concessional financing to respond to the multiple crises that they face. SDRs would play a greater role in providing financing to avoid the creation of another debt wave through new loans. AFRODAD continues to call for a sustainable solution to the current crisis that includes fundamental reforms of the global debt and financial architecture, addressing illicit financial flows, and supporting initiatives that spur domestic resource mobilisation.