New York: Hit hard financially by the Coronavirus pandemic, African countries today face acute liquidity constraints. Expenditures have outpaced revenues, leading to rising deficits. As of June, Africa accounted for 7 of the 8 countries in debt distress and 12 of the 23 countries at high risk of debt distress. Combined with tax evasion, illicit capital flight from Africa is estimated at $88 billion – equivalent to 3.7 per cent of Africa’s gross domestic product and almost the equivalent of official development assistance and foreign direct investment combined.
Bolstering transparency and exchanging data will be crucial in tackling the enablers and vested interests that benefit from these criminal practices. It is also time to seriously question the role and the very existence of tax havens. Without bold measures, Africa’s liquidity challenge could spiral into a solvency crisis. It is also vital to plug the serious leaks that divert vast amounts of funding from where it is needed most.
On the brighter side, since the beginning of the crisis, African countries and the African Union have shown commendable leadership and unity in response to the pandemic.
For their part, the International Monetary Fund and multilateral development banks have been instrumental in addressing liquidity needs across the continent. But going forward, far more resources will be needed to support a durable recovery. Bilateral debt relief captures only about a third of Africa’s debt exposure. Yet the past decade has witnessed an increase in the commercial debt of African countries and a comprehensive solution to today’s liquidity challenges must include private debt.
“Moreover, debt relief must not endanger future access to capital markets. I urge developed countries to support the Liquidity and Sustainability Facility, a special purpose vehicle which aims to channel concessional investment financing to emerging markets,” United Nations Secretary-General António Guterres’ said at the “Mobilizing with Africa II” high‑level event at the World Bank‑International Monetary Fund annual meetings, on October 9. He also stressed that the international community “must continue to show commitment to Africa’s health and well‑being”.
Noting that while the Group of 20 (G20) Debt Service Suspension Initiative provided much‑needed relief that needs to be prolonged, Guterres’ said this initiative excludes many developing countries, including middle‑income countries and several small island developing States that have been hit hard by the crisis. He called on development partners to broaden the Initiative’s eligibility to include all highly indebted and vulnerable countries that have been adversely affected by the emergency and also to seriously address the structural debt architecture problems.
“Since the beginning, I have been advocating for a new issuance of special drawing rights as an additional source of liquidity… I maintain my call for at least $500 billion US dollars in additional special drawing rights, as well as the voluntary reallocation of idle special drawing rights from developed to vulnerable countries,” he said.
The unprecedented nature of this pandemic requires allocations much greater than were made to meet the 2009 financial crisis. “No country has been spared from the pandemic. Low-, middle- and high‑income countries have all suffered directly through the colossal health impacts and indirectly from the dramatic decline in domestic activity and international trade,” Guterres reiterated. At the same time he stressed that pandemic recovery must also support the transition to a cleaner, more sustainable future. “In that spirit, we urge development partners to prioritize green growth through debt‑for‑climate swaps, namely. This financing instrument has proved to be effective in achieving the dual objectives of debt restructuring and environmental conservation, particularly in small island developing States,” he said. He expressed total solidarity of the United Nations with the people and Governments of Africa “at this pivotal moment for the continent and for the entire human family”.
