African leaders continue to call for the reshaping of global financial architecture, stating it currently stands as a tide against the continent’s economic progress. ALSO READ: There is room for all to benefit in re-designing global financial architecture – Kagame In an exclusive interview with The New Times’ Alice Kagina, Regis N’Sonde, Executive Director of IMF Africa Group, discusses what changing financial architecture means for Africa, challenges involved, and impact on debt levels. Below are excerpts. African leaders have been calling for the redesigning of global financial architecture. What are you hearing from your side as the IMF? The global financial architecture involves many aspects. The first element is to address debt liability of many African countries because more than half of these countries face debt distress or high-risk of debt distress. It is significant because if you allocate most of your resources to pay back the debt then, there won’t be much left to advance your development needs. The first step will be improving debt sustainability of countries through domestic resource mobilisation and address debt vulnerabilities through the G20 debt treatment framework and other debt relation mechanisms such as the global debt sovereign roundtable. ALSO READ: Africa demands ‘fair international finance architecture’ The second step would be what Africans themselves can do through domestic resources mobilisation, on average African countries mobilize less than 15 percent of their GDP, however this cannot be enough, external financing is necessary, which is why financial institutions such as the IMF and World Bank need more resources to be distributed to countries. What’s the IMF’s role in this needed change? The fund has done quite some significant effort in terms of SDR allocation two years ago during the Covid-19 pandemic but that was not enough because a small portion went to African countries. The SDR allocation is proportional to countries’ quotas and African economies only represent 4.5 percent of the fund’s quota shares. In May, the board took a decision to rechannel the $20 billion SDRs through the African Development Bank. These are reserve assets that cannot be used for development purposes and the decision was meant to create a hybrid instrument, however, the decision will be done by the advanced economies that have excess SDRs. Do these high economies embrace the need to rechannel their SRDs to developing countries? Not all of them are open to that. Some of them would like to but are constrained by their regulatory environment. For example, members of the European Central Bank cannot rechannel their SDRs because the central bank status imposes them. But, we encourage other advanced economies to rechannel their SDRs to multilateral development banks (MDBs). There are a number of them we hope to participate in. It is important because institutions like the AfDB can use the resources and leverage their AAA credit rating and go to the market to multiply those resources which will strengthen its lending capacity to the benefit of African countries. Is the $20 billion worth of SDRs given to AfDB enough? It’s definitely not enough. A few years back, advanced economies committed to providing $100 billion in climate finance to developing countries but are not coming in. If that which wasn’t enough is not even coming in, you can imagine $20 billion. But it’s a step to get more resources. Some African economic reports indicate that Official Development Aid has contributed to the debt distress of many African countries. What’s your take on that? This is because most of the financial support given to African countries are highly non-concessional and this means that the resources that they can attract in loan are of external financial terms that are tight with elevated interest rates and short reimbursement period. The IMF created a loan instrument called Resilience and Sustainability Fund to support developing countries facing climate change. It is a concessional instrument with a longer grace period and Rwanda was one of the first countries to tap into it. What’s hindering financial partners or advanced economies from extending concessional loans? They face quite a difficult fiscal situation, they don’t have enough fiscal space as in the past due to a number of shocks that have hit and they allocate priority they have into their own domestic issues and there is very little left for external provision.
