Africa needs international help to avoid a lost decade

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The author is Chief Economist and Deputy Executive Secretary of the United Nations Economic Commission for Africa.

African countries are facing a cost-of-living crisis, reducing global liquidity and worsening climate impacts. All of this is intensified by unsustainable debt burdens, which have been deepened by the devaluation of local currencies against the dollar and interest rate hikes by the US Federal Reserve.

As a result, African finance ministers now have to make impossible choices between paying civil servants’ salaries, keeping schools and hospitals open, and paying off increasingly expensive debt.

The current situation has serious implications for the stability of the region and the well-being of its citizens. In the year after the pandemic began, 62 million people in Africa fell into poverty; by the end of 2022, an estimated 18 million more had joined their ranks. Food and fuel inflation has hit families hard as the cost of producing basic goods has risen.

This is unfair. African countries have been rocked by shocks they did not create, but their participation in multilateral decisions that affect them is limited. A succession of international moments in the past two years—the G20 and G7 summits, the IMF and World Bank meetings—could have provided opportunities to change this dynamic, but largely failed to do so.

There have been some welcome initiatives. Several countries have committed additional resources to the IMF’s Poverty Reduction and Growth Facility (FCLP) and the IMF’s Sustainability and Resilience Trust Fund. World Bank members agreed to leverage the bank’s balance sheet more effectively to lend more funds.

But such commitments pale in comparison to the current need, which amounts to more than $1 trillion each year to address poverty and help build clean energy systems. African countries have seen the West take unprecedented steps to support Ukraine’s banks, as well as boost their own economies. Meanwhile, Africa has been left waiting, fueling frustration and anger. This must change.

There is an opportunity to alter this dynamic at the Summit for a New Global Financial Deal next month. The meeting, which will be hosted by France, will aim to increase financing for sustainable development along with specific political commitments to mobilize those funds. The summit should generate three discrete but significant policy changes.

First, African countries urgently need more liquidity. Advanced economies should commit to increasing their commitments to the PRGT. World Bank shareholders and management must present an action plan to triple grants and loans to low- and middle-income countries. They must agree that the IMF’s special drawing rights, a reserve asset designed in the 1960s to support cash-strapped countries, can be used by multilateral development banks to take advantage of low-cost lending. . The African Development Bank has put forward a credible technical proposal to do this. With just $2.5 billion in SDRs, ADB could mobilize an additional $10 billion in lending through its hybrid capital instrument.

Second, countries facing debt distress require effective, timely, and transparent processes for debt restructuring. The G20 Common Debt Framework was designed to do this, but in the two years since it was established, no restructuring has occurred for Zambia and Ethiopia, while Chad came to a tentative conclusion in late 2022. .The framework needs updating. , including an automatic suspension of debt service payments for those who apply and extended eligibility to middle-income countries. Only then can nations start to rebuild, rather than get stuck in a payment cycle.

Third, African countries must have a meaningful voice in these critical discussions.

The entire African continent, with a population of over 1.4 billion, does not have much more voting power in the IMF than Germany, which has a population of 84 million. While the current voting formula is largely based on the relative economic size and financial position of members, most of the institution’s operating costs are paid for by developing countries through interest payments from IMF loans. This system needs to be reformed, possibly creating a new category that considers the vulnerability of countries to external shocks.

A responsive and inclusive global financial system benefits everyone. If the world is to avoid a lost decade for Africa, 2023 must be a year of action, starting with the Paris Summit for a Global Financial New Deal.