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SIMPLE RIGHT

African leaders can try to take back control over aid with one request

French President Emmanuel Macron welcomes Nigerian President Muhammadu Buhari for a dinner with leaders of African states and international organisations on the eve of a summit on aid for Africa, at Elysee Palace in Paris on May 17.
Reuters/Gonzalo Fuentes
French President Emmanuel Macron welcomes Nigerian President Muhammadu Buhari for a dinner with leaders of African states and international organisations on the eve of a summit on aid for Africa, at Elysee Palace in Paris on May 17.
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France’s leaders are expected today to host 19 of the 55 African heads of state, the African Union Commission chairperson, and leaders from European nations and organizations in a series of face-to-face and virtual meetings. They’ve promised the summit will discuss a “massive support package for Africa,” an important prospect in the context of Covid-19, the current debacle around unequal vaccine access, and the much bigger challenge of equitable economic recovery.

So what should the African leaders be advocating for? There is only one request necessary if a “massive support package” is really on the table.

The ask relates to special drawing rights (SDRs), and the recent decision taken at the IMF to issue a new, unprecedented $650 billion tranche of the supplementary foreign exchange reserve assets, to “provide substantial liquidity boost to all our members, especially the most vulnerable,” in the words of IMF managing director Kristina Georgieva. Around 6% of the tranche, or $42 billion, will be allocated automatically African countries.

African leaders should ask for an additional, transparent, and immediate re-allocation of at least 25% of the new SDRs towards low- and middle-income countries on an equitable basis, without any conditions, such as prior IMF approval.

Here’s why.

We have previously argued that the $42 billion will hardly make a dent in supporting Africa’s current Covid-19 management costs, including for vaccines, let alone the costs of post-Covid-19 recovery and climate change action, which is also urgent. Furthermore, for Africa at least, the current allocation of SDRs relates very little to the most urgent need for vaccines, digital infrastructure, climate adaptation, green energy, and so on.

The IMF’s current allocation formula is based on a combination of metrics including economic size in relation to the rest of the world, economic volatility, and the country’s “openness” to international trade and financial flows. With the $42 billion allocated for Africa, the country that ends up getting the most SDRs as a proportion of its current income is Liberia—at 12% of GDP. Sierra Leone, Central African Republic, and Burundi get SDRs equivalent to 8% of their GDP.

Arguably, these countries need a boost to their incomes—they are amongst the poorest in the world. However, on the other end of the scale, Ethiopia, Angola, Nigeria and Cameroon are all examples of the 31 African countries that can expect SDRs equivalent to 1% or less of their GDP. Yet these countries have the largest populations in Africa, require massive support to manage the shocks of the coronavirus pandemic, and have also suffered the most debt management challenges.

By contrast, France will receive $32 billion of the new SDR tranche. The US will receive $112 billion, China $22 billion. Japan will receive $39 billion, the UK $32 billion. While these countries have suffered more deaths than low-income countries, in terms of economic recovery it is unlikely that these countries need all, if not the majority of these allocations. Hence the idea of “re-allocation.”

A formula that uses population or another metric for the additional reallocated funds will help to distribute more equitably across the continent.

As an example, just reallocating 25% of the SDRs of the wealthy G20 to Africa or a broader set of low-income countries, could make available an additional $107 billion for the most vulnerable countries in the world. If 50% were to be reallocated, as Barbados prime minister Mia Amor Mottley called for during a UN meeting of African finance ministers in March, the amount doubles to $213 billion. These kinds of funds could make a huge difference to Covid-19 management, especially given recent projections that Africans will not have access to sufficient vaccines until early 2024.

Reallocated SDRs at this kind of scale could also make a huge difference to other urgent financing needs on the continent, such as renewable energy access, climate change adaptation, and other infrastructure now crucial for a post-Covid 19 recovery, such as internet access for children and university students to access education resources online and at school.

But how should reallocated funds be then disbursed to African or other low- and middle-income countries? Should African leaders call for these new SDRs to be put into existing IMF funds for them to draw out as loans, as former senior IMF staffers, now at the Center for Global Development, have proposed? Or into regional development banks such as the African Development Bank, as prime minister Mottley also proposed? Or, could funds be put into a new private investment vehicle, as suggested by Dr Vera Songwe of the UN Economic Commission for Africa?

These suggestions all have their strengths. However, their key weaknesses are the delay that will be caused, the conditions they may extract—especially in the case of IMF programs—and their potential lack of transparency. We only need to look at the disappointing results of World Bank, IMF, and even African Development Bank lending throughout this period —“commitments” are significantly slower than actual disbursements.

This is not just due to bureaucracy.  It is also due to the protracted negotiations required by these institutions to constrain what the money will be spent on and any other economic “strings.” For instance, new IMF loans often require a significant contraction in government spending, which constrains government’s ability to provide social services or build new infrastructure. And the loans are controversial. In Kenya thousands of citizens recently petitioned the IMF to cancel a new Covid-19 loan, citing mismanagement of funds by the government and the country’s increasing debt load.

Unfortunately, Africa does not yet have its own monetary fund, to which the IMF could arguably simply forward an entire tranche of SDRs to, to then distribute across African countries. This will be possible for other regions.

Thus, we propose a simple alternative. Ask the IMF, while issuing SDRs, to distribute the one-off re-allocations from the G7, G20, or all countries to African and/or low- and middle-income IMF members directly, distributed by population or a similar formula.

The result will be immediate, simple, and transparent. The funds will come without externally imposed strings—just as much larger SDRs are being allocated to France, the US, UK without strings. African governments can deploy them immediately to assist with health costs, vaccine purchases, citizen support programs, debt servicing of multilateral, private, and bilateral debt and, perhaps even some left over for green and inclusive investments.

Is a transparent and immediate SDRs reallocation really a good idea? For instance, some British commentators remain concerned that giving SDRs to poor countries without strings will simply fuel corruption and autocracy.

The challenge with specifying what African and other low- and middle-income governments should spend on, whether via multilateral vehicles or on a case-by-case through the IMF, is that it removes their agency. The underlying assumption is the governments are irresponsible, and need the rest of the world, especially the richer, supposedly more responsible world, to manage what they do.  It can be interpreted as having a certain colonial mentality of “we know best.”

Specifying issues or instruments puts barriers in-front of the ability of African governments to coordinate and focus on their citizens, to whom they should ultimately be accountable.

That’s why, in Paris and online, the 20 African leaders need to ask for one thing and one thing only: Reallocate SDRs to Africa, transparently and immediately. The rest African leaders and citizens can deal with, at home on the continent. Assuming, of course, that a “massive support package” really is on the table.

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