The head of the IMF’s Africa department has called for a significant increase in international support to help countries overcome a funding squeeze that is jeopardising the continent’s economic development.
Abebe Selassie told the Financial Times that reform of the current mechanisms for dealing with unsustainable debts of African countries was “desperately needed”.
“Do we have the authorising environment right now, a Gleneagles-like moment? We don’t, but it is that kind of moment that is needed,” he said, referring to the G8 summit in Scotland in 2005 that led to the cancellation of $130bn of debt for dozens of poor countries. Selassie did not call for an outright cancellation of current repayments.
“We need a much more efficient sovereign debt framework,” he said. “We need to be sure that resources are going to support countries rather than being used to service unsustainable debts.”
Zambia defaulted on its external debts in 2020 and is still struggling to reach a restructuring agreement with its creditors. Last December, Ghana defaulted on its foreign debts and restructured its domestic debts.
Zambia has an IMF bailout programme but Selassie said the fund had been unable to conduct its second review because the country’s bilateral creditors, including China, had failed to reach agreement.
Ghana, he said, “can’t even get to the first step [of an IMF programme] because it needs financing assurances from its creditors”.
Several other African countries such as Egypt and Tunisia are at risk of default. Many have been shut out of international debt markets since 2020 by “exorbitant” borrowing costs, Selassie said, while finance from China and other new sources of lending had been curtailed, along with development assistance from rich countries.
Yields demanded by investors to buy foreign currency bonds issued by governments in sub-Saharan Africa have soared to more than 10 percentage points above those on US Treasury bonds for much of the past year, a gap typically regarded as a sign of severe distress.
“Very, very important long-term investments in health, education and infrastructure will have to be delayed [as a result],” he said.
Several African leaders have called for a radical increase in support from the international community through the IMF and multilateral development banks including the World Bank.
Ken Ofori-Atta, Ghana’s finance minister, recently called for a “recalibration” of funding resources for the region. He told the FT this month that the World Bank’s approximately $70bn in lending capacity for Africa was “clearly inadequate” and should be tripled to more than $200bn.
He also called for a new issue of the IMF’s special drawing rights that would be allocated for African countries. SDRs are a form of reserve asset of which $650bn’s worth were distributed to the fund’s member countries at the height of the pandemic in August 2021.
Selassie said it was “quite appropriate that ministers are pushing and asking these kinds of questions, and I really hope the international community listens”.
In a report published on Friday, the IMF said growth rates in sub-Saharan Africa would decline for the second year in a row, weighed down by a contraction in growth in key economies such as South Africa.
Growth across the region would hit 3.6 per cent this year, from 3.9 per cent last year, following a rebound to 4.8 per cent in 2021 after pandemic lockdowns were lifted, it said.