AFRODAD and SADC PF call for the Issuance of Special Drawing Rights (SDRs) as one of Financing options to fight against COVID-19 and boost African economic recovery.

Date

12 May 2021

Press Release/

15th March 2021

JOINT WEBINAR BY THE AFRICAN FORUM AND NETWORK ON DEBT AND DEVELOPMENT (AFRODAD) AND THE SOUTHERN AFRICA DEVELOPMENT COMMUNITY PARLIAMENTARY FORUM (SADC PF) ON IMF SPECIAL DRAWING RIGHTS AS ONE OF THE FINANCING OPTION TO FIGHT AGAINST THE COVID-19 PANDEMIC AND ECONOMIC RECOVERY IN AFRICA, HELD ON 15th MARCH 2021

The African Forum and Network on Debt and Development (AFRODAD) on March 15th, 2021 held the first in a series of webinars on “IMF Special Drawing Rights: An Option for Financing the Fight Against COVID-19 Pandemic and Economic Recovery in Africa”, in collaboration with the Southern Africa Development Community Parliamentary Forum (SADC PF).

The webinar was held in the context of growing calls for the International Monetary Fund (IMF) to approve the issuance of Special Drawing Rights (SDRs) to assist developing countries contain the economic and social impacts of COVID-19 pandemic in particular, and to enable their economic recovery. AFRODAD and SADC PF together with other civil society organisations are supporting the global call for the issuance of SDRs in an equitable manner that benefits developing countries as well as being an additional source liquidity to existing debt relief initiatives such as the Debt Service Suspension Initiative (DSSI) and Common Framework on Treatment of Debt.

Among the key outcomes of the webinar were unanimity in agreeing that the IMF should urgently issue new SDRs, and in a more equitable manner; as well as the need for Africa to come up with sustainable home-grown initiatives that would reduce the dependence on aid and related measures that have precipitated the present debt crisis.

In her opening remarks to webinar delegates, the Secretary-General of the SADC PF, the Honourable Ms Boemo Sekgoma, said, “During the meeting convened by the Economic Commission for Africa and the International Monetary Fund on 5th February 2021, African Ministers of Finance were unanimous in their call for additional liquidity, US$500 billion in Special Drawing Rights (SDR) and more concessional resources and an extension in the Debt Service Suspension Initiative, among others, given the prolonged nature of the Covid-19 pandemic.

“Similarly, during the 48th Plenary Assembly Session of the SADC Parliamentary Forum, a motion was adopted exhorting the regional body to support an initiative by Speakers and Heads of African national parliaments to call for total cancellation of the continent’s foreign debt. This is because many African countries are heavily indebted to industrialised countries and multinational bodies like the International Monetary Fund (IMF) and the World Bank.

“Today we again join in the discussion on the subject of public debt relief mechanisms amidst COVID-19 pandemic recovery efforts and Special Drawing Rights as option for economic recovery.” Hon. Ms Sekgoma said the frequency with which the subject of public debt at various public forums was being discussed revealed the magnitude of the debt burden in Africa in general and in the SADC Region in particular.

She told legislators in Southern Africa that, “In the likely event that SDRs are issued by the IMF, your oversight role will be of great importance particularly in holding the Executive accountable in the use of these resources, including calling for transparency in the disbursement and utilisation of the same.”

In her presentation, Dr Chiara Mariotti, Development Economist from EURODAD explained that “SDRs are an international reserve asset created by the IMF to supplement member countries’ official reserves; their value is based on a basket of five currencies and they cannot be held by private entities or individuals”.

The Executive Director of AFRODAD, Mr Jason Braganza told webinar participants that it was important for Governments, Members of Parliament, civil society and the general public to understand the issues around debt, SDRs and other financial instruments, and the various policy options and processes that would promote Africa’s economic recovery. “We are in the midst of a debt crisis that has been accelerated and exacerbated by the COVID-19 pandemic, and so we are very humbled and honoured to be having this session with the SADC Parliamentary Forum. It kicks off a series of webinars that we will be having across the continent to galvanise different positions and ideas from the continent as we take these voices up to the global level and advocate for strong negotiations, strong and equitable allocation of these special drawing rights in order to facilitate and enable our continent to come out of the current debt crisis that we are facing.” Mr. Braganza emphasised.

The AFRODAD Executive Director also highlighted that African countries had benefited from past debt cancellation programmes such as the Jubilee Movement, which influenced the positive outcome of the Highly Indebted Poor Country Initiative (HIPC), and the Multilateral Debt Relief Initiative (MDRI). He noted that since those interventions of the early 2000s, there had been a bit of a lull in holding governments accountable in terms of how they accrued debt, pointing out that there had been increased appetite for risk which had seen countries contracting debt from non-traditional lenders such as commercial lenders. Mr Braganza said the terms and conditions of these commercial debts were not as favourable as those of traditional bilateral lenders such as multilateral financial institutions, as they often came with high interest rates or harsh penalties for default.

As such, Mr Braganza concluded by saying that there was need to explore how Africa could use the different available “instruments and policy processes to secure some form of extended debt relief, debt restructuring and ultimately debt cancellation given the manner in which some of these debts have been accrued; but also in terms of how some of our creditors have behaved in lending to some of our governments in ways that are not in keeping with high levels of transparency, governance and accountability”.

The Hon. Mr Anele Ndebele (MP) from Zimbabwe said among the advantages of SDRs were that they had no conditions attached to them, were not associated with high interest rates, and had no negative impacts on domestic economies, among other positives.

Among his recommendations were that legislators should become more actively involved in ensuring accountability and transparency on how governments used SDRs; while adding that “African governments should become innovative and come up with domestic means to finance efforts to combat COVID-19”.

Other recommendations included:

Parliaments should conduct public hearings and stakeholder consultations on the disbursement of SDRs to make sure that the targeted sectors are reached;
Parliaments should capacitate lawmakers in the area of economic governance and budget appreciation; and
SDRs must be treated and scrutinized just as other loan agreements.

Another legislator, the Hon. Mr Marwick Khumalo (Eswatini) highlighted the case of his home country, which he said had contracted a heavy debt during the COVID-19 pandemic. “In our case in Eswatini, in September of last year we got a loan of US$110 million, and we will start repayments on of that amount in June of 2023. The payment period puts the country under pressure because we have to repay the loan in eight quarterly instalments. If we start paying the loan in June 2023, we are expected to have finished repayments by June 2025. What does this mean? It means each quarter we have to pay the equivalent of R204 million (approximately US$13,66 million). How are we going to handle this?”

He said while financial support was welcome, it should not add to the debt burden; and asked AFRODAD to help capacitate governments, legislators, civil society and the citizenry across the continent on matters of debt and the policy options available for purposes of getting a better deal for Africa.

Date 12 May 2021

Date

12 May 2021