France’s leaders
are expected today to host 19 of the 55 African heads of state, the African Union Commission chairperson, and leaders from European nations and organizations in a series of face-to-face and virtual meetings. They’ve promised the summit will discuss a “
massive support package for Africa,” an important prospect in the context of Covid-19, the current debacle around unequal vaccine access, and the much bigger challenge of equitable economic recovery.
So what should the African leaders be advocating for? There is only one request necessary if a “massive support package” is really on the table.
The ask relates to special drawing rights (SDRs), and the
recent decision taken at the IMF to issue a new, unprecedented $650 billion tranche of the supplementary foreign exchange reserve assets, to “provide substantial liquidity boost to all our members, especially the most vulnerable,” in the words of IMF managing director
Kristina Georgieva. Around 6% of the tranche,
or $42 billion, will be allocated automatically African countries.
African leaders should ask for an additional, transparent, and immediate re-allocation of at least 25% of the new SDRs towards low- and middle-income countries on an equitable basis, without any conditions, such as prior IMF approval.
Here’s why.
We have
previously argued that the $42 billion will hardly make a dent in supporting Africa’s current Covid-19 management costs, including for vaccines, let alone the costs of post-Covid-19 recovery and climate change action, which is also urgent. Furthermore, for Africa at least, the current allocation of SDRs relates very little to the most urgent need for vaccines, digital infrastructure, climate adaptation, green energy, and so on.
The IMF’s
current allocation formula is based on a combination of metrics including economic size in relation to the rest of the world, economic volatility, and the country’s “
openness” to international trade and financial flows. With the $42 billion allocated for Africa, the country that ends up getting the most SDRs as a proportion of its current income is Liberia—at 12% of GDP. Sierra Leone, Central African Republic, and Burundi get SDRs equivalent to 8% of their GDP.
Arguably, these countries need a boost to their incomes—they are amongst the poorest in the world. However, on the other end of the scale, Ethiopia, Angola, Nigeria and Cameroon are all examples of the 31 African countries that can expect SDRs equivalent to 1% or less of their GDP. Yet these countries have the largest populations in Africa, require massive support to manage the shocks of the coronavirus pandemic, and have also suffered the most debt management challenges.
Reallocated SDRs at this kind of scale could also make a huge difference to other urgent financing needs on the continent, such as renewable energy access, climate change adaptation, and other infrastructure now crucial for a post-Covid 19 recovery, such as internet access for children and university students to access education resources online and at school.
But how should reallocated funds be then disbursed to African or other low- and middle-income countries? Should African leaders call for these new SDRs to be put into existing IMF funds for them to draw out as loans, as
former senior IMF staffers, now at the Center for Global Development, have proposed? Or into regional development banks such as the African Development Bank, as prime minister Mottley also proposed? Or, could funds be put into a new private investment vehicle, as suggested by Dr Vera Songwe of the UN Economic Commission for Africa?
These suggestions all have their strengths. However, their key weaknesses are the delay that will be caused, the conditions they may extract—especially in the case of IMF programs—and their potential lack of transparency. We only need to look at the disappointing results of World Bank, IMF, and even African Development Bank lending throughout this period —“
commitments” are significantly slower than actual disbursements.
The result will be immediate, simple, and transparent. The funds will come without externally imposed strings—just as much larger SDRs are being allocated to France, the US, UK without strings. African governments can deploy them immediately to assist with health costs, vaccine purchases, citizen support programs, debt servicing of multilateral, private, and bilateral debt and, perhaps even some left over for green and inclusive investments.
Is a transparent and immediate SDRs reallocation really a good idea? For instance, some
British commentatorsremain concerned that giving SDRs to poor countries without strings will simply fuel corruption and autocracy.
The challenge with specifying what African and other low- and middle-income governments should spend on, whether via multilateral vehicles or on a case-by-case through the IMF, is that it removes their agency. The underlying assumption is the governments are irresponsible, and need the rest of the world, especially the richer, supposedly more responsible world, to manage what they do. It can be interpreted as having a certain colonial mentality of “we know best.”
Specifying issues or instruments puts barriers in-front of the ability of African governments to coordinate and focus on their citizens, to whom they should ultimately be accountable.
That’s why, in Paris and online, the 20 African leaders need to ask for one thing and one thing only: Reallocate SDRs to Africa, transparently and immediately. The rest African leaders and citizens can deal with, at home on the continent. Assuming, of course, that a “massive support package” really is on the table.
