- African economies are looking with hope to the Joe Biden administration and other G-20 countries to consider a proposal to allocate at least $200 billion from the unused reserves of the International Monetary Fund.
- The initial estimates by the United Nations Economic Commission for Africa (Uneca) has projected pandemic response funding gap of approximately $100 billion for Africa annually over the next three years
African economies are looking with hope to the Joe Biden administration and other G-20 countries to consider a proposal to allocate at least $200 billion from the unused reserves of the International Monetary Fund. The allocation is intended for fighting the impact of the coronavirus on the continent.
The initial estimates by the United Nations Economic Commission for Africa (Uneca) has projected pandemic response funding gap of approximately $100 billion for Africa annually over the next three years. IMF funds under the Special Drawing Rights (SDRs) – reserves from central banks of all IMF members – will be a big relief to cash-strapped governments on the continent. However, the SDRs are allocated in proportion to each country’s shareholding (quota) in the IMF. Therefore, Africa will have to depend on the generosity of the largest shareholders of the bank to reallocate their unused reserves and increase the capacity of the IMF to lend to low-income countries.
The proposal is expected to come up for discussions during the spring meetings of the IMF/ World Bank in 2021 and has to be voted by at least 85 per cent of IMF member states to be cleared. Africa has only seven percent of shareholding in the IMF. United States is the largest shareholder of the IMF with 16.51 percent of the votes.
The Trump administration delayed the decision. It is hoped that the Biden administration may be more sympathetic to Africa which is choking on debt and efforts to deal with the pandemic. Developed economies have launched massive stimulus packages to deal with the pandemic, but Africa lacks the financial strength. It urgently requires an economic relief package including loan restructuring, debt relief and a reallocation of SDRs from rich countries to navigate the health and economic crisis.
According to the IMF, it can only lend when debt is sustainable and added that it will continue to use the time-tested tools to evaluate countries’ debt sustainability and called for greater debt transparency and better tools for managing non-bonded or collateralised debt.
