Everyone needs a pandemic stimulus. But Africa also needs debt relief – OZY

The continent could drown in unpaid debt payments as richer countries spend their money on COVID-19 aid at home.

As COVID-19 spread across the world this spring, the group of major G20 countries reached a deal allowing 73 of the world’s poorest countries to postpone this year’s official bilateral debt repayments for three years. . But broader options have faltered as China and the United States have been reluctant to engage in broader collective action.

This week, government ministers from poor and indebted countries will call on their creditors for a much more ambitious debt relief effort as they grapple with the health and economic consequences of the coronavirus pandemic.

They will advocate for increased support from foreign governments and multilateral lenders as delegates gather for the annual meetings of the International Monetary Fund and the World Bank.

Financial assistance to cash-strapped governments has so far fallen far short of what is needed – and what advanced economies have been willing to do for themselves – critics say.

So far, 43 countries have requested debt suspensions under the initiative, delaying about $ 5.3 billion in payments this year, less than half of the $ 11.5 billion available, according to the Bank. global.

Critics say the debt service suspension has been hampered by confusion and disagreement over who should participate and on what terms. Private sector creditors, including commercial banks and bondholders, are not involved and have continued to receive repayments. China, which has become an important source of loans to poor countries in recent years, has only partially contributed.

Only three of the 43 countries concerned have asked private creditors for comparable debt relief, and no deal has yet been reached, according to the IMF.

The G20 is expected to announce an extension of the moratorium on repayments as early as this week. But finance ministers in countries in need of debt relief have said much more needs to be done.

“The ability of Western central banks to react [to the pandemic] to an unimaginable extent and the limits of our response capacity are quite shocking, ”said Ken Ofori-Atta, Minister of Finance of Ghana.

Ghana has sharply criticized Western countries for allegedly overlooking the growing crisis in Africa while finding billions of dollars to boost their own economies.

Adama Coulibaly, Minister of Economy and Finance of Côte d’Ivoire, said: “We hope that the [debt service suspension] will be extended for one year so that the initiative can have a real impact.

But Ukur Yatani, Kenya’s finance minister, said his country would stay away from the initiative. “Delaying our repayments for three years without giving us a break would place a heavy burden on us. We have heavy repayments at this time, ”he said.

Instead, Yatani said his hopes were based on an IMF program Kenya has started negotiating.

Richard Kozul-Wright, director of development strategies at the United Nations Conference on Trade and Development, said that “anything that provides resources that can be used to fight the pandemic in the most vulnerable countries must be fine. welcomed “. But, he warns, “overall, given the financial constraints these countries face, [the debt service suspension] just looks like a drop in the ocean.

Vera Songwe, head of the United Nations Economic Commission for Africa, is coordinating an appeal from African finance ministers for $ 100 billion a year for the next three years to support the stricken economies on the continent.

This is a fraction of the fiscal and monetary stimulus already provided to the United States and Europe compared to Africa’s combined annual economic output of around $ 2.6 trillion, she said.

Although Songwe wants the initiative to be expanded to benefit more countries, she said a loan guarantee mechanism to reduce borrowing costs for poor countries – which are already prohibitive for many with low credit ratings. credit – would be more powerful.

The “ideal private sector contribution to this crisis” would be for investors to agree “to make less income so that countries can access the resources they need at a lower cost,” she said.

The question is how to finance such an installation. The IMF could launch more of its so-called Special Drawing Rights (SDRs) – a form of proxy reserve asset – but that possibility has been vetoed by the United States. Still, Songwe called on G20 central banks to support the idea.

Ghana supports the idea of ​​using the SDRs to help amortize the finances of emerging economies and has been frustrated by what it sees as US opposition to the proposal.

“Not only do we have to create new SDRs to help us, but many Western countries do not use them, which means they could be transferred to us to prevent our liquidity problems from escalating into insolvency problems.” , explains Ofori-Atta.

Unless this week’s lobbying generates new momentum, however, finance ministers in many developing economies will have to think about how to cope in the coming months as the costs of COVID-19 rise. For Gayle Smith, president of One Campaign against Poverty, this is not an option: “It is unthinkable that in a global pandemic, the poorest countries of the world will have to choose between repaying debt service and maintaining their savings. afloat.

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Through Jonathan Wheatley, David Pilling and Andres Schipani

OZY joins forces with the United Kingdom Financial Time to bring you premium analytics and features. © The Financial Times Limited 2020.

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