Kester Kenn Klomegah
The International Monetary Fund (IMF) has been focusing on developments, especially during the Covid-19 pandemic and currently the Russia-Ukraine crisis, both shattered economies including and its impacts, on Africa. While Covid-19 seems to subsides, it is uncertain when the crisis might not end soon between Russia on one side and the United States and European Union.
One fundamental effect is that economic gains recorded previously are being eroded by the Covid-19 and Russia-Ukraine crisis in Africa. African leaders are showing their pragmatism in diplomacy as it was during Cold War times – the ideological-political confrontation between East and West. African leaders grossly benefitted from both sides. Currently they stand without condemning Russia for the negative effects of its invasion into Ukraine, so also without attacking the United States and Europe.
Generally, International Monetary Fund Managing Director Kristalina Georgieva said early July that most African countries are confronted with economic challenges and deteriorating social situations. For instance, the IMF staff team headed by Carlo Sdralevich visited Accra during July 6-13, 2022, to assess the current economic situation and discuss the broad lines of the government’s Enhanced Domestic Programme that could be supported by an IMF lending arrangement.
At the conclusion of the mission, Sdralevich said: “Ghana is facing a challenging economic and social situation amid an increasingly difficult global environment. The fiscal and debt situation has severely worsened following the Covid-19 pandemic. At the same time, investors’ concerns have triggered credit rating downgrades, capital outflows, loss of external market access, and rising domestic borrowing costs.”
“In addition, the global economic shock caused by the war in Ukraine is hitting Ghana at a time when the country is still recovering from the Covid-19 pandemic shock and with limited room for maneuver. These adverse developments have contributed to slowing economic growth, accumulation of unpaid bills, a large exchange rate depreciation, and a surge in inflation,” he added.
He, however, disclosed that “the IMF team held initial discussions on a comprehensive reform package to restore macroeconomic stability and anchor debt sustainability. The team made progress in assessing the economic situation and identifying policy priorities in the near term. The discussions focused on improving fiscal balances in a sustainable way while protecting the vulnerable and poor; ensuring credibility of the monetary policy and exchange rate regimes; preserving financial sector stability; and designing reforms to enhance growth, create jobs, and strengthen governance.”
He noted that the “IMF staff will continue to monitor the economic and social situation closely and engage in the coming weeks with the authorities on the formulation of their Enhanced Domestic Program that could be supported by an IMF arrangement and with broad stakeholders’ consultation”.
IMF Managing Director Kristalina Georgieva, speaking to a forum sponsored by the Devex development media group, said the risks of a debt crisis among developing countries were rising because of interest rate hikes in advanced countries to control inflation.
She said a positive outcome from the negotiations was crucial for Chad, Ethiopia and Zambia “and to energize other countries to step forward” to seek restructurings, and would make clear the need for more cooperation on debt relief at a G20 finance leaders’ meeting in Bali, Indonesia.
“There is a growing risk of a debt crisis. I want to spell it out as clearly as I can and I will do that in the next days over there” in Indonesia, she said. “Why? Because the level of debt has gone up during the pandemic, financial conditions are tightening – more expensive to service it.”
That 30% of the developing and emerging markets are at or near debt distress levels, while that rate doubles to 60% for low-income counties. So if we don’t act, guess what is going to happen? Not good for these countries and certainly not good for financial stability, Georgieva explained.
In April this year, the IMF returned with a set of new funded programmes to Mozambique, six years after the lender halted its previous deals in the wake of a financial scandal involving three fraudulent security-linked companies, and two banks—Credit Suisse and VTB of Russia, on the basis of illicit loan guarantees issued by the government under former President Armando Guebuza.
The IMF reached an agreement on a US$470 million facility lasting until 2025 and further plans to implement development programmes in Mozambique.
In anothercdevelopment, the IMF executive board approves US$638 million, extended credit facility for Benin under a 42-month arrangement to help address pressing financing needs, for Benin. The decision will enable an immediate disbursement of US$143 million, which Benin authorities intend to use for budget support, the IMF said.
Like other countries in the region, Benin’s economy has been battered by global shocks including the coronavirus pandemic, the war in Ukraine, and increasing attacks by Islamist militants in the north of the country.
“Benin faces significant headwinds from a deteriorating security situation at its northern border, COVID-19-induced scars, the war in Ukraine, as well as significant climate risks, which could erode hard-won economic gains in recent years,” the IMF said. “The programme is calibrated flexibly to accommodate large spending needs in the near term; it then pivots to revenue-based fiscal consolidation starting in 2023 to ensure medium-term debt sustainability,” it added.
IMF’s Georgieva further warns against ‘complacency’ on global debt problem. The IMF is pushing China and other Group of 20 economies to speed up debt relief for a growing number of heavily indebted countries, warning that failure to do so could unleash a damaging “downward spiral.”
Georgieva told Reuters news agency that it was crucial to jumpstart the largely stalled Common Framework for debt treatments that was adopted by the G20 and the Paris Club of official creditors in October 2020 but has failed to deliver a single result thus far.
“This is a topic we cannot have complacency on,” she said. “If trust is eroded to a point that there is a downward spiral, you don’t know where it would end,” the head of the International Monetary Fund said in an interview late last week ahead of this week’s meeting of finance officials in Indonesia.
Georgieva said she spoke with Indonesian President Joko Widodo, who holds the rotating presidency of the G20 this year, during last Group of Seven meeting in Germany and urged him to push for greater unity on debt before the G20 leaders summit in November. “G20 leaders don’t want to be in a situation in which that issue dominates the conversation just because we are not making progress,” Georgieva said.
Western officials are stepping up criticism of the G20 Common Framework process after nearly two years of glacial progress blamed largely on foot-dragging by China, the world’s largest sovereign creditor, and private sector creditors.
Georgieva said almost a third of emerging market countries and twice that proportion of low-income countries were in debt distress, with the situation worsening as advanced economies raised interest rates. Capital outflows from emerging markets were continuing and almost one in three of these countries now had interest rates of 10% or higher, Georgieva said, noting more middle-income countries, including Sri Lanka and Malawi, were seeking help from the fund, with others likely to follow.
Georgieva suggested it was imperative to agree on debt relief for Zambia, Chad and Ethiopia, three African countries that have requested help under the Common Framework and whose creditor committees meet this month, urging especially China to better coordinate among its multiple lenders, warning Beijing would be the “first to lose dramatically” if current debt problems tipped into a full-blown crisis.
IMF has its own conditionality and it is a set of policies or conditions. Some of these conditions for structural adjustment can include: Cutting expenditures or raising revenues, also known as austerity.
Focusing economic output on direct export and resource extraction; Devaluation of currencies; Trade liberalization, or lifting import and export restrictions; Increasing the stability of investment (by supplementing foreign direct investment with the opening of facilities for the domestic market; and Balancing budgets and not overspending.
The rest are: Removing price controls and state subsidies; Privatization, or divestiture of all or part of state-owned enterprises; Enhancing the rights of foreign investors vis-a-vis national laws; Improving governance and fighting corruption; Banning the use of cryptocurrencies. These conditions are known as the Washington Consensus.
The International Monetary Fund (IMF) is an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is “working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
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