Debt relief to support the economic recovery

Covid-19 is a stark reminder of the fragility of life. As the pandemic started to gain traction globally, an invisible threat started to take away the lives of thousands; young and old; healthy and not. Health authorities launched response mechanisms with massive deployments, both resources and finances, going to the health sector to prepare for the worst. Concurrently, economies started and are still feeling the brunt too. Companies stalled, economies coming to a standstill. It all soon became a question of survival for many firms and layoffs became an inevitable reality. No economy has remained unscathed. The effects of Covid-19 will be long-lasting and will span across different sectors. In trying to build back better, governments around the world need to have the fiscal space to manoeuvre and invest in their people and economies once again. However, for this to happen, legacy issues like debt need to be addressed, especially for African states. African governments urgently need capital to stabilize economies hit by cumulative external shocks and to finance an adequate public-health response. Yet, unlike the eurozone or the United States, most African countries cannot print money to get them through the crisis. Moreover, their fiscal space remains limited, not least because they must continue to make large debt payments. If African governments lack the resources to respond effectively to the crisis, the hard-won gains of recent decades will be wiped out. The Covid-19 pandemic is a shared global challenge, and it demands a shared global response that addresses both the health and economic dimensions of the crisis. Debt relief for Africa is an essential feature of any such response. It was therefore a sigh of relief to read that the Executive Board of the International Monetary Fund (IMF) approved a third tranche of grants for debt service relief for 28 member countries under the Catastrophe Containment and Relief Trust (CCRT). This approval follows two prior tranches approved on April 13, 2020 and October 2, 2020, respectively. It enables the disbursement of grants from the CCRT for payment of all eligible debt service falling due to the IMF from its poorest and most vulnerable members from April 14, 2021 to October 15, 2021, estimated at US$238 million. This tranche of grants for debt service relief will continue to help free up scarce financial resources for vital emergency health, social, and economic support to mitigate the impact of the Covid-19 pandemic. Subject to the availability of sufficient resources in the CCRT, debt service relief could be provided for the remaining period from October 16, 2021 to April 13, 2022 amounting to a total of about $964 million. Thus far, donors have pledged contributions totaling about $774 million including from the European Union, the UK, Japan, Germany, France, the Netherlands, Switzerland, Norway, Singapore, China, Mexico, Philippines, Sweden, Bulgaria, Luxembourg, and Malta. The debt relief was and is not automatic for countries. It is the result of an IMF assessment that asserted that Rwanda is pursuing appropriate macroeconomic policies to address the global pandemic. Staff also assessed that the resources freed by the initial tranches of Fund debt service relief under the CCRT, and RCF disbursements are being properly used to help provide emergency health, social and economic support to the economy to mitigate the impact of the pandemic on lives and livelihoods. Looking ahead, Rwanda needs to remain focused on building its structural capacity, infrastructure and shore up economic resilience. It is already achieving a lot and is building a robust, yet diversified economy based on a number of pillars. Transforming existing sectors is going to be critical as well as ensuring that the current sectors further diversify themselves and attract new niche sectors. In the coming years, also on the back of this debt relief, the country should focus on a number of key pillars to ensure that the economy is able to develop, grow and more importantly lead to human development. There are 4 key principles which I believe will be imperative for countries, including Rwanda to build back better. These are: • Transformation: There is no doubt that any economy needs to continuously transform itself. In order to do so it needs to be agile to harness new or forthcoming trends; legislate and attract international investment. Pioneering legislative innovation, such as gambling can be one source of such transformation. However, attracting new sectors should not come at the expense of re-inventing the ones already present. • Technology: Covid-19 has highlighted the importance of embracing a digital transformation in our daily lives as companies scrambled to go online or to offer remote working. Going forward, Government needs to ensure that the digital transformation deepens and there are all the requirements for Rwanda to become a proper digital society. • Transition: The economic recovery needed and stimulus packages that will be required to sustain demand and investment should be used to transition our economy on a more sustainable trajectory whereby quality of life is given the importance it requires. We need to see a green renewal which spans across and within sectors. Climate change mitigation and adaptation offer many economic opportunities which can create new niche sectors in financial services including sustainable finance • Talent: The backbone of human development remains employment. Rwanda needs to ensure that it focuses on building an educated workforce that can be the main driving force of the economic renewal. In addition, attracting international talent through residency or VISA schemes as well as tax incentives can support knowledge transfer. A crisis should be productive. We need to stop, think and reflect on our collective future more than ever. The current phase will pass however, one should focus on the future and on building back better. The debt relief underway and confirmed recently will support this phase too. An economic recovery needs to be initiated and needs to be one that promotes inclusive and sustainable growth. The 4Ts should serve as guiding principles. The writer is a co-founding partner of Seed, an internationally-focused advisory firm based out of Malta. www.seedconsultancy.com | jp@seedconsultancy.com

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Debt relief to support the economic recovery