Coronavirus: G20 states postpone some of Africa’s debts but block cancellation

In depth
This article is part of the dossier: Corona Chronicles: 13 April – 17 April

By Patrick Smith

Posted on Friday, 17 April 2020 15:12
The spread of the coronavirus disease (COVID-19) in Cape Town
Community volunteers put the masks on as they prepare to distribute food packages during a 21-day nationwide lockdown aimed at limiting the spread of the coronavirus disease (COVID-19) in a township in Cape Town, South Africa, April 17, 2020. REUTERS/Mike Hutchings

Africa’s frontline financial lobbyists have won the first battle this week in their campaign to raise funds for countries wrestling with the coronavirus pandemic. Some of this could come from member states increasing the resources of the IMF, a move that the US has firmly resisted so far. 

The African Union’s finance team is seeking deferments of interest and principal repayments, and some cancellation of the estimated US$365 billion in international debt owed by economies in Africa.

The latest projections from the World Health Organisation’s modelling means Africa could see some 10 million coronavirus cases within three to six months. The reality that states pay far more on servicing foreign debt rather than on public health, may weigh heavily on the minds of many.

READ MORE: COVID-19: arming Africa with a debt, aid and open digital delivery partnership

But the marginal concessions made by creditor countries so far shows the difficulty of negotiations in a climate described by one commentator as “the end of the world economy as we know it”.

“Debt holiday”

Early on 15 April, a virtual meeting of the Group of 20 (G-20), economies that make up 80% of world output, agreed to a minimalist formula of debt relief for the 76 poorest countries: a suspension of official debt obligations until 2022.

This debt holiday could be worth “north of $20bn” said Saudi Arabia’s finance minister, Mohammed al-Jadaan, who chaired the meeting.

French treasury analysts reckoned the concession could postpone just $12bn of payments due this year. The G-20’s offer covers just a quarter of the debt service payments that Africa is due to make this year.

 After the holiday…

But the debt principal and interest will have to be paid when payments are due to restart next year. Meanwhile interest will continue to accrue on those suspended debts. And the deal offers no respite to African countries defined as lower middle-income such as Côte d’Ivoire, Ghana, Kenya and South Africa.

READ MORE: Africa needs debt relief to fight COVID-19

African ministers have also been calling on Beijing to offer some relief on payments to service the $140bn debts owed to China’s government and its biggest companies. Chinese officials say they want to deal with the question piecemeal on a bilateral basis, rather than in a multilateral forum.

Small breakthrough

Given the G-20’s failure to offer palliatives on debt – other than rhetorical statements until now – its first concession this week was a qualified win for the Africa Union’s team led by Tidjane Thiam, Cote d’Ivoire’s former minister of trade and managing director of Credit Suisse.

Working alongside him are Donald Kaberuka, former President of the African Development Bank and Trevor Manuel, former finance minister of South Africa, both veterans in the international money markets.

The AU team’s goal is to secure $44bn of debt relief, a generalised suspension of interest payment for all of Africa’s economies, and a stimulus package of $100-150bn.

A few hours before the G-20 meeting, French President Emmanuel Macron was on Radio-France Internationale arguing for a more generous deal: “For as long as the crisis lasts, we must ensure African economies have breathing room, that they are not held back by repayments on debt.”

Macron said a moratorium on debt repayments would be a step towards an eventual cancellation of some of the debt. “This [moratorium] means suspending payments of interest … we spread out the debt and perhaps in time everyone will be on board with this idea of [debt cancellation].”

Backing for ‘Special Drawing Rights’

Sweeping debt cancellations are anathema to some G-20 members, as is Macron’s backing for the expansion of the IMF’s “special drawing rights (SDRs)” to offer a liquidity boost to developing economies.

The SDRs are a form of global money issued by the IMF. They are held in the foreign reserves of member states of the IMF and can be traded or used for transfers to other country’s central banks. At the height of the global financial crisis in 2009, the IMF issued SDRs to the value of $250bn to boost liquidity in the international system.

READ MORE: Fighting COVID-19 in Africa’s most vulnerable states needs grants not loans

This week, Macron joined with German chancellor Angela Merkel and African leaders such as Ethiopia’s Abiy Ahmed and South Africa’s Cyril Ramaphosa, in signing a letter to the London Financial Times urging the IMF to “decide immediately on the allocation of special drawing rights … to provide liquidity for the procurement of basic commodities and essential media supplies”.

Pushback on initiative

But the US Treasury led by Steven Mnuchin has pushed back hard at such a plan when it came up at this week’s Spring meetings of the IMF and the World Bank.

IMF managing director Kristalina Georgieva, who strongly backs calls for more SDRs, had promised the opening press conference of the meetings on 14 April “to act decisively with what we have and where there is full consensus among our members [but] we recognise that there are other options to be explored and we will continue to do so.”

Next up on the debt negotiation list will be Africa’s private creditors who are holding some $115bn in bonds. They are keeping out of public discussions, but privately say that any attempted renegotiation of these liabilities would amount to a default.

And that would lock many countries out of the markets.

Bottom line:  The campaign to restructure Africa’s debts faces immense obstacles, particularly from the US and China, but international opinion is shifting in its favour.

 

 

 

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options
Also in this in Depth:

Coronavirus: South Africa expects economy to tank as it grapples with pandemic

South Africa is bracing for a deep recession amid the COVID-19 outbreak, and is engaging with domestic and international financiers to mount an adequate response.

Coronavirus: Ethiopia’s opportunity to reboot its troubled transition

Ethiopia has postponed elections scheduled for August and declared a five-month state of emergency to tackle the COVID-19 pandemic. If managed well, this time could be used to put the country’s democratic transition back on track.

Coronavirus: for Africa’s sake, the West should be selfish this time

The COVID-19 pandemic cannot be classified as a surprise. Several studies, intelligence reports and epidemiologic knowledge all predicted some infectious disease caused by severe acute respiratory syndrome would likely spread around the world.

Coronavirus: Nigerian Medical Association and government still feuding

The Nigerian Medical Association (NMA), founded in 1951, is the professional association of Nigerian doctors and dentists. It has over 40,000 members from the 36 states and the Federal Capital Territory, and just under 20,000 from the diaspora, making it the largest medical association in West Africa. It also has a history of conflict with the federal government.

World Bank: debt relief needed to protect African informal sector

An overwhelmingly informal workforce and weak a fiscal position mean that debt relief must be at the front line of Africa’s response to COVID-19, the World Bank says in Africa’s Pulse published this month.

Amidst coronavirus crisis, retrenchment consultations are underway at SAA

South African Airways’ (SAA’s) worker downsizing exercise remains on track, despite the country being under lockdown, The Africa Report has learned.

COVID-19: arming Africa with a debt, aid and open digital delivery partnership

It’s in everyone’s interests that Africa beats COVID-19 too, with a debt, aid and open digital delivery partnership.

Not even coronavirus stops Saudis from deporting Ethiopians

Not even the global COVID-19 pandemic has stopped the deportation of thousands of Ethiopian expatriates from the Gulf countries.

Coronavirus: Didier Raoult the African and chloroquine, from Dakar to Brazzaville

Born in Senegal, where he spent his childhood, the French doctor and researcher has maintained strong professional and emotional ties with the continent. And many African countries are already using chloroquine to treat people infected with Covid-19.