Africa: Meeting Africa’s Liquidity Needs While Protecting Market Access – Appeal by Finance and Development Ministers

05/10/2020 Ethiopia, Technology, World



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Addis Ababa – Declaration jointly signed by the finance ministers and / or development ministers from the following countries: Angola, Cameroon, Djibouti, Egypt, Ethiopia, The Gambia, Ghana, Kenya, Mali, Namibia, Niger, Senegal, Seychelles, Sierra Leone and Tunisia.

As the Coronavirus pandemic storm spreads across the globe, in Africa it is leaving many economies that have been performing very well for several years in a freefall.

The IMF predicts that global growth will contract by -3.0 percent with developed countries taking the brunt of this hiring at double the world average by -6.1 percent. The global economy is in a slump and bold action is required across the board to support a return to growth.

African economies are not only affected by the consequences of the pandemic, but all productive sectors, including tourism that provides tax and foreign exchange earnings to many countries and employs millions, are suffering. The collapse of commodity prices and remittances have further worsened the situation for many countries with rapidly depleting reserves.

The United Nations Economic Commission for Africa predicts that growth across Africa in 2020 will contract by -1.8 percent and approximately 28 million more people will fall into poverty, while unemployment will increase by an additional forty percent.

With economies in free fall, Africa needs liquidity now!

The consequences for the economies will be severe, livelihoods across the continent will be destroyed, and social cohesion threatened if sufficient means and policies are not implemented to plan and respond to these pressures in a coordinated manner.

The challenge for policymakers on the continent today is to minimize the immediate impact of the depression and start sowing the seeds for growth. This will require swift national actions complemented by the support of the international community.

Address the liquidity needs of African countries.

Governments need liquidity and they need it now. African countries have launched self-help policies to manage the crisis. Measures include addressing the challenges of healthcare, lessening the impact on vulnerable families with additional social safety nets, tax breaks or exemptions for businesses, as well as cheap financing facilities for affected businesses, including SMEs. African central banks have taken steps to increase liquidity and facilitate moratoriums or restructuring of corporate and personal loans.

Governments have already launched abundant stimulus packages, averaging 2 to 10 percent of GDP in many countries, from Egypt to South Africa, from Senegal to Djibouti. These fiscal stimulus measures, in an environment of economic blockade, where no additional income is collected, put undue pressure on already extended budgets.

Consequently, governments must raise new and additional massive resources from multilateral, bilateral and trade partners.

Hence, the need for a suspension of debt service for two years until the full extent of the pandemic and depression is fully understood. Countries should not be made to choose between saving lives or repaying debts.

Before the crisis, many governments focused on critical actions to build prosperous societies by improving infrastructure, energy, connectivity, technology and education services.

In the past decade, access to energy increased from about 30 percent to 70 percent in Kenya, Senegal and the Ivory Coast, for example. The Djibouti – Ethiopia railway has improved connectivity in the Horn of Africa as has the Senegambia Bridge. From the Mombasa port in Kenya to the Lomé port in Benin and the Tema port in Ghana, port activity doubled as economic activity across the continent was picking up.

Stopping bilateral debt is a first step, more will be needed

African finance ministers called for fiscal stimuli of $ 100 billion, the IMF has already extended debt relief to the 17 low-income countries of the continent, and through other mechanisms has disbursed more than $ 17 billion in funds from emergency to countries to address the Covid-19 pandemic.

The G20 approved a suspension of the bilateral debt of some emerging market countries for 9 months until the end of 2020, and this is a good start.

But we have to go further as required by ministers, and include 2021 in deadlock, as economies are unlikely to return to normal next year.

To be fully effective, this stop offer must be specified and improved in many ways. To echo the calls of various African and international leaders, some cancellation of public debt will be necessary for certain countries. Negotiations need to be opened without delay bilaterally and on a case-by-case basis.

The case of international commercial debt

On the commercial debt front, there is also a need to act, as a large part of Africa’s sovereign debt service corresponds to the commercial debts guaranteed by our countries through the international loan and Eurobonds markets. For Africa, this represents a debt service of around US $ 17 billion in 2020. Africa needs to preserve the access that it cost so much to gain to the international financial market avoiding any default on the continent, voluntary or otherwise.

Access to resources in international markets must be protected..

To date, more than 21 African countries have issued Eurobonds. Bond issues have increased from $ 2.5 billion in 2010 to over $ 50 billion in 2020. Thanks to massive public investments made possible by funds raised and reforms that attracted more private investment, including FDI, We created more jobs, eliminated millions of poverty and made progress in the Human Development Index. Access to the resources of these international markets must be protected.. African countries, like their counterparts in developed countries, need financial markets to develop.

Through discipline and strong macroeconomic policy stances, Africa has made great strides, but much remains to be done. The crisis should not threaten all of these gains, nor should it shake market confidence in Africa.

The financial sector has been a beacon of innovation in times of crisis. This time is no different. An instrument that allows African countries to pay their debt in a timely manner, avoid defaults, meet their obligations to commercial creditors and have access to some liquidity would be the best option for everyone.

We encourage the development community, the IMF, the World Bank, and other financial institutions to work with Africa and the markets to implement this plan. One or more appropriately structured bridge vehicles (Special Purpose Vehicles) could be appropriately financed and guaranteed by multilateral and bilateral partners with the primary objective of purchasing the 2020 and 2021 debt service obligations and converting them into concessionary or semi-concessionary debt with a longer term maturities to free up much-needed fiscal space over the next two years.

Vehicles can be adequately accredited to achieve a low financing cost. We could also envisage the use of special drawing rights (SDRs) combined with guarantees to achieve an optimal structure. There is no doubt that we can accommodate all relevant limitations and achieve this vision if our bilateral and multilateral partners work with us.

A solution to finance Africa’s commercial debt service could free up more than $ 44 billion of fiscal space for Africa by 2020, providing immediate liquidity to governments, a much-needed immediate bridge to renewed growth for Africa and the global economy .

Providing Africa with the means to cushion the impact of the crisis and sowing robust seeds for recovery is as urgent as working to eradicate the coronavirus.