Viewpoint: Ernest Addison
African economies are faced with acute debt challenges, underscored by rising social and infrastructure needs. This is coming amid spillovers from the Covid-19 pandemic, the war in Ukraine, the tightening of global financing conditions and climate change. Public debt in sub-Saharan Africa has reached levels last seen in the early 2000s. The resulting increased debt service burden, together with complex creditor composition, has heightened risks to debt sustainability to the extent that more than half of countries in sub-Saharan Africa are in or at high risk of debt distress. Simultaneously, protracted high inflation has constricted the policy space, posing difficult trade-offs. This challenging environment has led to another year of moderate economic recovery, as growth in the region is projected to further decelerate in 2023. While countries in sub-Saharan Africa remain committed to implementing relevant policies and reforms to enhance fiscal discipline with the aim of restoring debt sustainability, and fostering inclusive and sustainable growth on the continent, much stronger support from the IMF would be crucial in the current challenging environment.
Given the fragmentation of global finance, we urge the IMF to remain steadfast, and adapt to better meet the changing global conditions and better serve its vulnerable membership. In this context, we restate our request for increased concessional financing by aligning thresholds for the Poverty Reduction and Growth Trust (PRGT) with those of the Ghana Revenue Authority to ensure uniformity of treatment. In addition, we call on the fund to relax the PRGT eligibility criteria to foster access while reducing, suspending or eliminating surcharges for the most vulnerable eligible members facing acute debt challenges. We also reiterate our call for additional pledges from donors to close the gaps in the trust’s resources. We further stress the criticality of a successful completion of the ongoing 16th General Review of Quotas to reinforce IMF finances, while protecting the quota share of the vulnerable members.
Strengthening multilateral coordination and the efficiency of the regulatory framework for debt resolution in low-income countries through a formidable Global Sovereign Debt Roundtable (GSDR) will be paramount. While welcoming the latest developments in Zambia and Chad, we underscore the need to revamp the G20 Common Framework to ensure a timely, orderly, equitable, inclusive and transparent debt restructuring for distressed members in sub-Saharan Africa, including Ghana, Ethiopia and Malawi.
In this regard, we call for a carefully designed debt resolution mechanism, especially for vulnerable members with large domestic creditors – as in the case of Ghana – to help avert domestic financial market instability. In addition, improving debtor-creditor engagements through an enhanced GSDR while strengthening technical support to foster a common understanding of debt issues is macro-critical to bolster a swifter, and more proactive and systematic restructuring.
We reaffirm the request for a debt standstill during negotiations to offer immediate relief to debtors and restate our request for multilateral debt cancellation for the most vulnerable facing acute challenges. Furthermore, enhanced IMF cooperation with multilateral and regional development banks is necessary to facilitate the timely provision of financial assistance for countries facing significant debt and growth challenges. In this context, we restate the call for the allocation of new IMF financing through development banks, including the African Development Bank, given their multiplier effects in climate and development goals.
Deepening the fund’s tailored capacity development and surveillance support, in collaboration with other international partners, is crucial to addressing member-specific bottlenecks for restoring public debt sustainability, and bolstering inclusive and sustainable economic growth and development in the region.
The above is an abridged version of Addison’s address made on October 10, 2023 to the IMF in Morocco.
Read More from OBG
