Frustrated by the slowness in accessing Covid-19 vaccines and funding for vaccine equity, African Ministers of Finance have unanimously agreed to resort to the reserves with International Monetary Fund (IMF).
This is emphasised in their communique of the Conference of African Ministers of Finance, Planning and Economic Development, in Ethiopia, where they stressed the need for a swift, bold and positive response on Special Drawing Rights (SDRs) in the range of 500 billion to 650 billion to arrest the devastating impact of the pandemic on the continent.
An SDR is an interest-bearing international reserve asset created by the IMF to supplement other reserve assets of member countries.
Vera Songwe, the Executive Secretary of the UN Economic Commission for Africa (ECA), said: "We are asking for SDRs because we would like to increase Africa's access to liquidity."
"We are asking for SDRs in the order of 500 to 650 billion. This translates, under prevailing dollar exchange rates, to somewhere between $450 to $500 billion."
As the SDRs are allocated on a quota basis, she said, Africa would get around $25.6 billion which is still not enough.
The Ministers are mindful of the increased importance of private creditors in Africa’s financing landscape, now accounting for 40 per cent of the continent’s total debt, compared to a bilateral debt exposure of 27.6 per cent.
Addressing Africa’s debt and future financing needs will be incomplete, they noted, without taking into account Africa’s exposure to private creditors.
More importantly, they noted, the private sector must be a key partner in Africa’s recovery and, in this context, blending public and private resources will be vital.
The G7 Finance Ministers on March 19 instructed the IMF to take further action and urge all partners to support the G7’s position on SDRs.
"We note that, based on Africa’s current IMF quota share, a new issuance would provide a maximum of SDR 33.3 billion in additional resources to Africa if 650 billion of new SDRs were issued. This would barely be adequate to meet the continent’s financing needs," the Communiue states.
"To supplement these resources, we further request the G7 to support an on-lending mechanism that channels, on a mutually agreed basis, SDRs to low-income and middle-income countries. The IMF’s Poverty Reduction and Growth Trust (PRGT) should be considered for this purpose."
The Ministers noted that funding the PRGT with SDRs will facilitate additional financing for urgent country priorities in light of this crisis, including the acquisition of vaccines by low-income countries. The SDRs can also be used to acquire vaccines and increase market re-entry access for eligible countries, they noted.
"We are conscious of the fact that new issuances of SDRs are infrequent and often contested events. To this end, we believe that it is imperative that we seize the moment by leveraging these resources to power catalytic investments in Africa’s recovery."
"The SDRs must be transformative for Africa and help the continent to access the trillions of dollars needed for a green recovery. This is within reach."
The ministers are convinced that, with adequate and rapid financing and appropriate comprehensive macro-fiscal and structural policy reforms, the continent can recover from the pandemic much faster and much stronger.
By March 18, Africa had crossed the grim milestone of 4.1 million coronavirus infections, with a case fatality ratio in excess of the global average.
The pandemic has had a devastating impact on African economies. For the first time in a quarter century, the economies are in recession.
Real GDP growth contracted by 2.4 percent in 2020 and 30 million people lost their jobs and slipped into poverty.
African countries mobilized approximately $44 billion in domestic resources. Governments also secured access to 270 million vaccines at competitive prices, an effort that, it is believed, will increase the vaccination rate in Africa to 60 percent of the population and promote herd immunity. To fully fund this initiative, approximately $2 billion in financing is needed.
Approximately $26.1 billion in total commitments
However, the Ministers noted that they are encouraged by the financial assistance and support of public development banks, the G20 Debt Service Suspension Initiative (DSSI) and the G20 Common Framework for Debt Treatments beyond the DSSI.
The DSSI postponed an estimated $5.1 billion in debt service payments by eligible African countries, providing much needed liquidity to save lives and rebuild livelihoods.
The African Development Bank and the World Bank committed $13 billion and $50 billion,respectively, while the IMF committed $25.6 billion to support Africa. An additional $408 million has been approved through the Catastrophe Containment and Relief Trust (CCRT), bringing total commitments to approximately $26.1 billion.
The Ministers also commend the EU for committing €100 million in humanitarian assistance to support the rollout of vaccination campaigns in Africa, spearheaded by the Africa Centres for Disease Control.
However, they noted, with no end to the pandemic in sight, extending the duration of the DSSI at least to end of 2021, and possibly to end of 2022 and expanding its scope to address the liquidity needs of middle-income countries is vital to pre-empt the larger threat of insolvency, particularly for countries with market access and relatively strong fundamentals.