Many political leaders across Africa could be heaving a sigh of relief after the IMF last month approved a Special Drawing Rights (SDRs) disbursement of US$650 billion, the largest such allocation to members of the multilateral financial institution in history.
It is understandable why many would think of this as a relief: the COVID-19 pandemic has wreaked havoc on economies due to the twin challenge of having to increase health and social spending at a time economic productivity is down.
Another reason why many will be happy with the IMF announcement is that SDRs are not loans. It is money that goes directly to central banks to essentially spend as they please without having to worry about paying a dime of that cash back.
Lobbyists have been urging governments not to be wasteful when it comes to how they spend their respective allocations of the SDRs, with a common theme being that of accountability and prudence, and priority spending on health, social services and grants to cushion those sections of society worst affected by the COVID-19 pandemic.
But there is another conversation around this whole issue that is no longer taking place, a debate that has quickly been placed on the back burner, perhaps because cash has suddenly appeared.
When developing countries were lobbying for a major SDR disbursement, there was a push by organisations such as the African Forum and Network on Debt and Development for the figure to be in the region of US$3 trillion, roughly four times what the IMF in its historically questionable wisdom has deigned to dole out.
There were good reasons for lobbying for such a huge allocation.
Firstly, the scale of the economic disaster in poor and developing countries is catastrophic and thus requires a commensurately massive cash infusion. Even now, as the world talks about post-covid recovery, the scale of recovery is going to be lower in the Global South than it will be in the Global North.
The second motivational factor behind the US$3 trillion SDR lobby was that the formula used by the IMF to share this kitty is skewed towards already rich countries because of their share of the global economy. In essence, through SDRs, the IMF gives more support to countries that do not need it as much as those whom it gives a smaller share.
In the present case, of the US$650 billion, only US$275 billion – less than half the total allocation – will go to the majority poor and developing countries, while a few rich countries will share US$375 billion.
This is despite the fact that the IMF itself has on several occasions said the world’s poor and developing countries have inadequate resources to combat COVID-19 and to revive their economies during this pandemic. See why we refer to the IMF’s “historically questionable wisdom”?
But the reality is the developing world was unable to convince the IMF to make a US$3 trillion SDR disbursement this time around, and that the lobby to change the allocation formula to make it more equitable is more of a marathon than a sprint.
With that in mind, the onus is on the developing world to gear itself for the long haul, and the context for this should be a push for a wholesale restructuring of the global financial architecture beyond just lobbying the IMF to allocate more SDRs and to do so more equitably.
A restructuring of the global financial architecture should speak to one of the major underlying causes of the developing world’s perennial economic woes: that of debt.
For instance, of the US$650 billion in SDRs being disbursed, just eight percent of this money will find its way to countries that are in serious debt stress.
Consider that the average public debt for countries in the Southern Africa Development Community increased from 39.2 percent of GDP in 2011 to 55 percent in 2019. Mozambique’s debt-to-GDP ratio is in the region of 120 percent, and that of Angola is around 106.8 percent.
And there are legitimate grounds to question the manner in which some of these debts have been accrued.
Loes Debuysere of the Centre for European Policy Studies says “Africa’s debt crisis can be traced to the colonial period when major foreign trade defects, such as high export dependence and high concentration on a few commodities, became characteristic of Africa’s economy”.
She goes on, “These defects, a legacy of European colonialism, have laid the foundations of Africa’s debt crisis. If the EU, whose initial integration was deeply intertwined with the colonial project, and EU member states are genuine about fostering a more ambitious and equal partnership with Africa, they should use this momentum to pay back some of their own direct and indirect colonial debt through a debt jubilee for Africa.”
It is a line of thought that Vasuki Shastry and Jeremy Mark of the Atlantic Council have expounded on.
They say, “… what is needed post-pandemic is an independent review of Eurobond and other contracts signed by African governments. These contracts are heavily skewed in favour of creditors, with no flexibility to deal with emergencies like a pandemic.”
Nick Beams, as published elsewhere in this edition of The Southern Times, “Debt is a problem across the board. According to the Institute of International Finance, average government debt in large emerging market economies rose from 52.2 percent of gross domestic product to 60.5 percent in 2020 — the largest increase on record.”
More crucially, and still within the context of an overhaul the global financial architecture in light of the latest IMF disbursement of SDRs, Beams writes that: “Viewed within a longer term historical perspective, the IMF’s latest intervention via SDRs could well be described as the case of a criminal returning to the scene of the crime and seeking to expunge vital evidence.
“One of the main reasons health services in less developed countries are in such parlous condition and why debt levels are so high — constricting the spending on vital health services — is the impact of so-called “structural adjustment” programmes imposed on them in an earlier period by the IMF. First imposed in the 1980s and then continuing into the 1990s and the present century, countries that sought assistance from the IMF were required to meet strict conditions including the privatisation of public services, deregulation of financial markets and reduction of social spending, including on health.
“Between 1980 and 2014, 109 out of 137 developing countries had to enter at least one structural adjustment programme. A recent article by Adele Walton in the UK Tribune magazine pointed out that some 25 countries were spending ‘more on debt than healthcare, education, and social protection combined in 2019, meaning the intense strain of an international health care crisis has left swathes of populations without access to essential services and resources’.”
Need we say more?