African economies, including Uganda are in a financial squeeze caused by mounting debts and the economic downturn exacerbated by the outbreak of the Covid-19 pandemic. This has left many economies in financial distress to effectively tackle economic recovery. This ushers in the need for African countries to receive Special Drawing Rights (SDRs) from the International Monetary Fund (IMF) as an immediate option for addressing the challenges of financing recovery and procurement of Covid-19 vaccines to save African lives. The demand for SDRs issuance is however not the only option, but one of other recommendations that have been brought forward by various Civil Society Organisations (CSOs).
The SDR is an “international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. So far SDR 204.2 billion (equivalent to about US$281 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis. The value of the SDR is based on a basket of five currencies i.e. the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling” (IMF 2020). Issuance of SDRs is one of the financing options to fight against Covid-19 and African economic recovery. While the developed world and rich G20 countries may not need new issuance of SDRs, developing countries need it. SDR allocations “can play a role in providing liquidity and supplementing member countries’ official reserves, as was the case amid the global financial crisis”.
The global pandemic has resulted in a multitude of crises affecting Africa. African countries in general are witnessing a fiscal dilemma due to shrinking revenue collection and mobilisation, burdensome debt repayments, and the trading off in expenditure towards social protection. As part of the response to this fiscal dilemma, SDR issuance would create fiscal space for investments in health spending including procurement, as current initiatives are still falling short of effectively providing sustainable solutions.
It is in this regard that in a media briefing attended by more than 25 Ugandan journalists on 25 March 2021, Civil Society Organisations including SEATINI Uganda, UDN, CSBAG and TIU joined AFRODAD and other global CSOs to call for new issuance of 3 trillion of SDRs currency or equivalent 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; and support increasing health spending for tests, protective equipment, treatment as well as procuring vaccines and investing in healthcare systems.
In his opening remarks, Jason Braganza, AFRODAD's Executive Director highlighted that in the last decade, there had been warnings that the African Continent was sliding into a debt crisis because of the neoliberal development agenda with the rise in privatisation of finance. Commercial creditors have remained largely unwilling to participate in current debt relief initiatives as they demand a return on their investment, Jason further cautioned. Indeed as of 2020, 34 countries were at high risk of debt distress and there was increase of debt through commercial bonds from the international capital market. There has also been increase of loans from non-Paris club of creditors like China, Saudi Arabia, India which have grown from 15% in 2007 to 30% in 2016. While loans from Paris Club of creditors fell from 25% to 7% during the same period. To worsen the matter, poor and unsustainable investment choices with the loans has led to slow gains and Covid 19 added to the gloom by weakening domestic resource mobilisation and heavily shocking the economic. Jane Nalunga, Executive Director at SEATINI Uganda noted that with the Covid 19 pandemic, Low Income Countries had been pushed to borrow heavily to address their fiscal needs which left them with larger piles of unsustainable public debts.
SDR issuance of $3trillion would help in achieving much for developing countries, for example:
- Increased health spending – for tests, protective equipment, treatment, eventually vaccination;
- Countries need to waive fees/out-of-pocket payments to ensure universal access and coverage of healthcare;
- Broader investment in healthcare to strengthen systems;
- Increased social protection spending to allow locked down citizens to survive financially and protect the most vulnerable;
- Increase water provision (handwashing, sanitation, hygiene) – housing or other elements for homeless/slum-dwellers – education – social distancing etc. – public information; and
- Rebuild economies - direct bailouts of enterprises.
Three important points though:
- SDRs issuance is not the only option to support African countries rise above the current debt crisis, it is one of the viable financing options to fight against COVID-19 and boost African economic recovery.
- While SDRs are an additional source of finance they are not a replacement nor the silver bullet to the structural problems associated with the debt crisis.
- We support SDRs issuance but we call for more fundamental changes and reforms to the global debt and finance architecture that provides a fair and transparent mechanism for the interaction between debtor and creditor. This mechanism is underpinned by the principles of equality, equity, and fairness.