Harare – The African Forum and Network on Debt and Development (AFRODAD) says countries on the continent are in urgent need of a liquidity injection to help them navigate through the COVID-19 pandemic in particular and to get on the path to economic recovery in general.
To that end, AFRDOD this week reiterated its call for the IMF to play its part in international economic stability and development by issuing Special Drawing Rights worth US$3 trillion.
The money, the organisation said, would enable countries to invest in protecting citizens against economic contraction and boost health spending.
“It is encouraging to note that IMF is reported to be working on modalities of SDRs allocation of around US$650 billion. The G7 is in support of SDRs issuance. African countries need urgent access to concessional financing to respond to the multiple crises that they face. SDRs play a greater role in providing that financing to avoid the creation of another debt wave through new loans,” said AFRODAD.
During the Zimbabwe Multi-Stakeholder Dialogue on the SDRs in Harare this week, AFRODAD executive director Mr Jason Braganza said: “The debt crisis has been on the rise for several years in Africa and in recent years the situation was compounded by the COVID-19 pandemic.
“In this regard, the issuance of the SDRs will relieve the debt crisis and assist developing countries in their economic recovery path from the global COVID-19 pandemic. However SDRs are not a sustainable solution; there is vital need for advancing reforms of the global debt architecture for better and sustainable debt management mechanisms.”
EURODAD senior policy analyst Dr Chiara Mariotti said “the current quota allocation (of SDRs) for African states is very low and is much lower than what the countries need to repay in their current debt; hence an increase in the fund will give African countries a significant amount to assist them in this COVID-19 pandemic and with the debt crisis”.
She explained: “For example, a US$1 trillion SDR allocation would give low and middle-income countries an additional US$330 billion in reserves. Larger or smaller allocations would scale that figure proportionately, hence a US$3 trillion allocation will give more.”
AFRODAD said African countries were compelled to borrow more to finance stimulus packages and healthcare, further pushing them into the debt trap.
SDR lobby gains global traction
Harare – SADC countries have been urged to expedite industrial expansion in order to enhance production and expand export capacity and diversification in order to better cope with external economic shocks such as the COVID-19 pandemic.
This came out during a webinar on Special Drawing Rights (SDR) organised by the African Forum and Network on Debt and Development (AFRODAD) and Zimbabwe on Wednesday.
The webinar was part of a global lobby by AFRODAD to get the IMF to issue a new allocation of SDRs and in a restructured manner that directs more resources to low-income countries than has historically been the case.
AFRODAD and other civil society organisations want the IMF to issue SDRs worth at least US$3 trillion, a figure they contend will have a significant impact on low-income countries. The broader lobby advocates for extensive debt relief that culminates in total debt cancellation.
The G7 finance ministers last week approved the expansion of SDRs for African countries.
Addressing Wednesday’s webinar, AFRODAD senior policy analyst Mr Tirivangani Mutazu said if regional states focussed on building industrial capabilities, they would significantly minimise the dangers of falling into a debt trap and instead build self-sustainability.
“We must build our industries in order for us to be resilient against external economic shocks as those currently being experienced because of the COVID-019 pandemic,” Mr Mutazu said. “SDRS should be used under the watch of citizens and for long term investments. They should be used to strengthen macro-economic discipline.”
He also said there was need for countries to come up with strong SDR insurance.
“One of the reasons to call for SDRs is that countries would have more freedom to choose how to use them compared to new lending by the IMF and the World Bank. We need to make strong arguments for bigger SDR insurance. Huge SDR insurance would achieve a lot for developing countries which can use them on health spending among others,” he said.
Mr Mutazu said a new and significant allocation of SDR would enable countries to boost reserves and stabilise economies.
“It would free up funds urgently needed for the pandemic response including gender responsive public health systems, universal social protection and comprehensive vaccine rollouts. It would also provide much needed foreign exchange resources whose capacity to earn them continues to be severely constrained in the short to medium term.”
SDRs are preferred because they do not add to countries’ debt while injecting liquidity that stimulates economic productivity.
Zim in line for US$740m
Harare – Zimbabwe could receive over US$740 million from its share of the IMF’s Special Drawing Rights that are expected to be issued later this year – if the multilateral financial institutions accedes to growing demand for their issuance.
SDRs are an international reserve asset created by the IMF to supplement member countries’ official reserves.
They are held by central banks and can be exchanged for hard currency with a corresponding institution in another country. Central banks can then be used at the discretion of the receiving country to either finance any urgent or long-term needs, or be used to shore up a country’s creditworthiness by being added to the national reserves.
With the major economic downturn occasioned by the COVID-19 pandemic, there is a growing lobby, by institutions such as the SADC Parliamentary Forum and the African Network on Debt and Development, for the IMF to issue SDRs, and for an extensive debt suspension plan that leads to total debt cancellation.
Lobbyists say the SDRs are crucial for economic recovery and to assist countries to finance COVID-19 responses.
There have been indications that the IMF is amenable to an SDR allocation in the region of US$500 billion, but the SADC PF, AFRODAD and others are pushing for an issuance of at least US$3 trillion.
The argument is that the current allocation structure already discriminates against low-income countries, and as such for SDRs to have a meaningful impact, the total value must be considerably higher than US$500 billion.
At a virtual meeting organised by AFRODAD on March 31, a senior policy analyst at the organisation, Mr Tirivangani Mutazu, said Zimbabwe was presently eligible for an SDR allocation of 0,1485 percent of the total issuance.
He said that in the event that US$500 billion was issued, Zimbabwe would get US$743 million. However, an allocation of US$650 billion would see Zimbabwe getting US$965,3 million, and a US$3 trillion pay-out would mean the country would be in line for US$$4,456.4 billion.
Similarly, using the current formula, all developing countries would all be in line for a significant infusion of liquidity at a critical time if the IMF upped the issuance.
Mr Mutazu said, “The SDR’s should be used under the watch of citizens and for long-term investments. Any other use should be approved by parliament under a special resolution.”