Africa: Where do rich countries stand on their debt commitments?

By Yara Rizk
Posted on Wednesday, 6 July 2022 15:59

Senegal’s President Macky Sall delivers a speech during the 35th African Union (AU) Summit in Addis Ababa, Ethiopia, on 6 February 2022. © Minasse Wondimu Hailu / ANADOLU AGENCY via AFP

Although many developed countries have expressed their willingness to transfer their Special Drawing Rights (SDRs) to African governments, nothing has yet materialised. We take stock of the progress of the discussions.

“Let me be very clear, the UK would like to transfer some of its Special Drawing Rights (SDRs) to Africa through the African Development Bank (AfDB),” Vicky Ford, UK minister for Africa, Latin America and the Caribbean, said at the 2022 Annual Meetings of the AfDB Group in Accra in May.

The UK government reiterated that statement on 27 June, and many other developed countries have also expressed their willingness to transfer SDRs to African countries. Recently, Akinwumi Adesina, president of the AfDB, said he was “in talks with Canada and France” on this subject. However, despite all these announcements, nothing has yet materialised.

SDRs are international reserve assets that the IMF created in 1969 to supplement its member states’ official reserves without creating additional debt. The value of an SDR is determined by reference to a basket of currencies, the composition of which is reviewed every five years.

Less than half the amount that the US received

In 2021, against the backdrop of economic threats and the health crisis, the IMF injected a record $650bn into the global financial system by granting SDRs to its member states. Allocations are based on predetermined quotas dependent on the size of the countries’ economies.

For example, $33bn was allocated to the 54 African countries (5% quota), $23bn of which was given to sub-Saharan African governments. The continent, as a whole, received 80% of what France alone was granted and less than half of what the US got.

The international community meeting held under the auspices of the G20, which had judged the amount devoted to the continent in 2021 to be “too low”, had committed to paying the equivalent of $100bn in the form of SDRs to the most vulnerable countries.

This promise has not been kept due to procedural issues. Even after the latest G7 meeting in Germany in June, no clear new information in this regard has been shared. However, the seven world powers have set up a new development aid project, which is seen as a response to Chinese influence in Africa and elsewhere.

$252bn needed by 2025

In February, Senegal’s President Macky Sall, who currently chairs the African Union (AU), called for more funding for the continent at a summit in Addis Ababa. He said: “In view of the profound impact of the crisis, Africa needs additional funding of at least $252bn by 2025 to manage the shock and begin its economic recovery.”

In line with this ambition, Senegal’s president promised to continue advocating for African countries to be allocated “$67bn, which can be mobilised from the SDR quotas of the rich countries that agree to it, in order to reach the $100bn target set at the Paris summit regarding the financing of African economies”.

Importance of development banks

The AfDB – which has 54 African shareholders and 27 non-African shareholders, including France, the US and Japan – has a “AAA” credit rating that allows it to count SDRs as equity and raise funds at lower costs than most sovereign African issuers. According to its president, the AfDB is “a real leverage machine”.

The funds raised could be used as additional financing for regional development banks and countries in the form of concessional loans. “We are pioneers for Africa, but also pioneers for the multilateral development banks, which can complement and magnify the IMF’s work,” the AfDB’s finance director, Hassatou Diop N’Sele, told the press.

Directing SDRs towards multilateral development banks (MDBs) would also promote complementarity between development institutions and the IMF. “The IMF will focus on macroeconomic and fiscal stabilisation, where it has a comparative advantage, while the MDBs will focus on sectoral programmes and policies,” said Adesina.

Currently, SDRs can only be reallocated through the IMF’s Poverty Reduction and Growth Fund and its Resilience and Sustainability Fund. The AfDB has been working with other MDBs to rally support from developing and developed country leaders for its proposal to channel SDRs through MDBs. It is also considering creating “security-indexed bonds” to promote peace and allow its African Development Fund to further tap into capital markets.

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