[ad_1]
Business news for Wednesday, October 14, 2020
Source: Ken Ofori-Atta
2020-10-14
Ken Ofori-Atta, Minister of Finance
Ghana confirmed its first two COVID-19 cases on March 12, imports from Norway and Turkey. Since then, Africa has recorded more than 1.5 million cases and continues to rise, although in terms of infections and deaths, we have fared better than most regions. Perhaps this is due to our young population, natural social distancing from outdoor life, and experience with managing infectious diseases, aided by good leadership.
Our economies, however, have not been spared. Across the continent, governments are facing falling revenues, increasing expenditures, increasing debt overhang and a significant decline in development indicators. In a harbinger of things to come, Zambia now appears to be heading for the continent’s first pandemic-related private debt default. The human costs are tremendous. Up to 39 million people are expected to fall below the poverty line.
The last six months have brought laudable interventions from multilateral institutions and the G20 countries. The G20 moved quickly to establish a debt service suspension initiative, which has secured deferrals of some $ 5.3 billion in debt service payments. The IMF has approved more than $ 25 billion in emergency funding for Africa, and the World Bank’s Covid-19 fast-track program is providing $ 160 billion.
As we approach the fall meetings of the World Bank and IMF this week, much remains to be done. The IMF’s creditworthiness should double to $ 2.5 trillion. European countries have some $ 260 billion in special drawing rights, of which they have little use and could easily be lent to African countries. The United States is completely opposed to the issuance of new SDRs.
Meanwhile, China is negotiating with Africa on a country-by-country basis rather than mainland, which is blocking progress. That makes Western creditors reluctant to offer concessions for fear that the released resources will simply be transferred to Beijing. Some of China’s state financial institutions are not officially included in the G20 debt suspension.
Still, China is a major partner in Africa’s infrastructure development, with more than $ 148 billion in loans to the continent. Private creditors and the Institute of International Finance, which represents banks and insurers, have been remarkably silent, even as planned defaults begin.
African finance ministers have called for a two-year suspension of the extended debt; $ 300 billion in new concessional financing over three years to accelerate economic recovery; the structuring of a special facility for sustainability and improved credit liquidity to lower the cost and facilitate access to capital markets; and a debt relief and cancellation program for vulnerable countries.
It may sound like a lot, but on a global scale, African demands are a drop in the bucket. The G20 countries have already spent more than $ 10 trillion on economic stimulus and recovery packages for their own economies. Africa’s request is less than 3% of what OECD countries have spent so far to safeguard their own economies from the pandemic.
Where is the fierce urgency for change in a global event of this scale? We must all ask ourselves, as does the parable of the Good Samaritan in the Bible: “If I don’t stop to help this man, what will happen to him?”
We must seize this opportunity to engineer a tectonic shift in the global financial architecture. That requires ambitious reforms to address fundamental inequalities in the global financial system. Africa continues to pay an unsustainable risk premium of about 600 to 800 basis points for its debt and insurance, costing Africa more to borrow than it should. This is not justified by Africa’s modest record of non-compliance. Furthermore, each year $ 50 billion in illicit financial flows leave the continent, an indictment from both Western investors and financial centers and African corruption.
African nations cannot wait for others to act. We must take the initiative by establishing a secretariat to coordinate the various interest groups and power centers to propose a restructuring of the global financial architecture. Then that body should try to work with the G20, the World Bank, the IMF and the UN, to make it suitable for Africa and other developing countries as we navigate the post-COVID-19 recovery. Africa does not ask for charity. It is asking for equity.
The author is the Finance Minister of Ghana and outgoing Chairman of the Development Committee of the IMF and the World Bank.
Send your news to
and features for
. Chat with us through WhatsApp at +233 55 2699 625.
