BUSINESS & ECONOMY
No Recovery without debt relief
MO IBRAHIM
The COVID-19 pandemic is a shared global challenge , and it
demands a shared global response that addresses both the health and economic dimensions of the crisis . More extensive debt relief for Africa is an essential feature of any such response .
In June , the African Union launched the Africa Medical Supplies Platform to facilitate the production and provision of vital medical equipment – the latest achievement in an already impressive response to the COVID-19 crisis . Yet , in the same week , it was revealed that most of Nigeria ’ s federal government revenue was going to debtservice payments , and the country would be cutting public-health spending by 40 % – even as COVID-19 infections continue to climb .
The contrast is as tragic as it is stark . The world ’ s youngest continent is itching not only to stand on its own two feet , but also to provide global leadership . And it remains hamstrung by an old foe : debt . If Africa is to achieve its potential , its creditors must set it free .
Debt relief works . Fifteen years ago this week , the G8 issued the
Gleneagles declaration , relieving 18 “ highly indebted poor countries ” – Benin , Bolivia , Burkina Faso , Ethiopia , Ghana , Guyana , Honduras , Madagascar , Mali , Mauritania , Mozambique , Nicaragua , Niger , Rwanda , Senegal , Tanzania , Uganda , and Zambia – of debt totaling more than $ 40 billion .
No longer saddled with massive debt-service costs , countries were able to invest more in their own economies and people . Many of the countries that had received debt relief , such as Ethiopia and Rwanda , subsequently experienced significant upticks in economic growth . Standards of health care , access to education , and employment opportunities improved markedly . And countries improved their governance and benefited from greater stability – crucial to sustaining long-term growth .
This progress is now at risk of unraveling . Though Africa has so far recorded a relatively low number of COVID-19 infections , it faces a severe economic crisis , with potentially far-reaching social and political implications . External demand , oil prices , tourism and travel revenues , and remittances have all collapsed . Investors have pulled $ 100 billion from emerging markets since the beginning of the pandemic – the largest-ever capital outflow in such a short period This is contributing to a deepening – and highly dangerous – liquidity crisis .
African governments urgently need capital to stabilize economies hit by cumulative external shocks and to finance an adequate publichealth response . Yet , unlike the eurozone or the United States , most African countries cannot print money to get them through the crisis . Moreover , their fiscal space remains limited , not least because they must continue to make large debt payments . This leaves their leaders with an impossible choice : cut spending on crucial services , as Nigeria has done , or default .
Debt relief would save countries from this bleak scenario , freeing up the capital needed to fight the pandemic and stabilize the economy . World leaders already recognize this . In April , G20 leaders agreed to suspend some debt repayments for the world ’ s poorest countries for the rest of 2020 . But it is nowhere near enough . Pledges must now be swiftly implemented and significantly expanded . Specifically , all creditors – bilateral , multilateral , and private – must implement an immediate debt-service standstill for all African countries until the end of 2021 .
As Vera Songwe , the Executive Secretary of the United Nations Economic Commission for Africa , has proposed , a special purpose vehicle ( SPV ) could also be created , modeled on the repurchase (“ repo ”) facilities that American and European central banks often use to support the smooth functioning of markets . This new lending vehicle , backed by the G20 central banks , would not only expand access to cheap liquidity ; if designed well , it could also support the shift toward a more sustainable growth model .
The International Monetary Fund also has an important role to play . The creative use of its reserve asset , Special Drawing Rights , could go a long way toward supporting fragile economies .
The world ’ s wealthiest economies have responded to the COVID-19 crisis with unprecedented fiscal measures . African countries must do the same . Ensuring that they can is not charity ; it is a matter of shared interest .
If African governments lack the resources to respond effectively to the crisis , the hard-won gains of recent decades will be wiped out ; poverty will skyrocket ; the virus will become increasingly difficult to contain ; and social unrest will grow , particularly in countries like Sudan that are already struggling to end decades-long conflicts . This would exact a massive human and economic toll , and leave all of us living in an increasingly insecure world .
The COVID-19 pandemic is a shared global challenge , and it demands a shared global response that addresses both the health and economic dimensions of the crisis . Debt relief for Africa is an essential feature of any such response . – Project Syndicate
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