October 8 (THEWILL) – The International Monetary Fund (IMF) has strongly supported the African Development Bank Group’s call urging African countries to stop borrowing loans backed by their natural resources.
IMF Managing Director Kristalina Georgieva met with African Development Bank Group President Akinwumi Adesina in Abidjan, Ivory Coast, on Thursday. This is the first time an IMF chief has visited the bank’s headquarters since its creation in 1964.
Welcoming Ms. Georgieva, Mr. Adesina said: “Resource-backed loans are non-transparent, costly and make debt settlement difficult. ” He warned that if this trend continued, “it would be a disaster for Africa.”
Ms. Georgieva said the Fund’s management team “will carry out a thorough evaluation. We will speak out forcefully to tell countries not to pave the way for predatory and enslaving lending. »
She said the issue would also be discussed at the Global Sovereign Debt Roundtable, comprising bilateral creditors, private creditors and borrowing countries. The roundtable is co-chaired by the IMF, the World Bank and the G20 presidency. The African Union joined the G20 in September as a permanent member.
Ms Georgieva is on her way to Marrakech, Morocco, for the annual meetings of the World Bank Group and the IMF which were last held in Africa 50 years ago.
The IMF chief said she was visiting Africa at a time when the continent holds great promise for more dynamic growth around the world.
“We often focus on the challenges facing the continent, because that is where the impact of climate change is much more severe, where macroeconomic and financial instability and debt are amplified. »
“But we want to focus on the opportunities in Africa for the simple fact that the capital is in the North and a young population is in the South, mainly here in Africa. If we don’t build a bridge for capital to flow where it’s needed most, it could lead to a bigger problem.
Mr. Adesina praised the bold efforts made by IMF chief and US Treasury Secretary Janet Yellen, at the height of the Covid-19 pandemic in 2021, to support the global economy by allocating $650 billion in entitlements special editions (DTS).
Africa, with a population of over 1.2 billion people, received about $33 billion in SDRs, representing only 5 percent of the total allocation, the smallest share among the different regions of the world.
The African Development Bank continues to lead discussions and develop models to reroute SDRs through multilateral development banks. MDBs can exploit these resources three to four times their initial value. Mr. Adesina thanked the IMF for working with the African Development Bank team on an initiative that could help channel SDRs through MDBs.
“Together with the Inter-American Development Bank, we have developed a model that meets the IMF’s reserve asset status. If you channel $5 billion through the Bank, we will use our leverage and that could easily become $20 billion of new financing for Africa,” Mr. Adesina said.
The Bank chief said the initiative would provide much-needed support to countries in Africa where post-pandemic debt remains a major challenge. “It is more serious for low-income countries which constitute the Bank’s concessional lending window, the African Development Fund. They are also the most vulnerable in the world to climate change.
Georgieva, who has publicly supported the Bank’s SDR initiative, said the two institutions will continue to work together to find ways to deploy SDRs as hybrid capital.
“I officially support the Bank’s efforts and if it succeeds, there will be a significant expansion of the financial capacity of countries, even beyond our years in office,” she said.
The African Development Bank Group’s SDR proposal is supported by African leaders and UN Secretary-General António Guterres.
The IMF chief also welcomed the Bank’s initiative, in collaboration with the African Union, to establish an African Financial Security Mechanism to protect the continent against exogenous shocks such as the impact of COVID-19.
According to Mr. Adesina, “Africa is the only region in the world that does not have a safety net against shocks. Europe has it. Asia has it. America has it. The Middle East has it.
The African Union endorsed the African Development Bank Group’s proposal for the mechanism at its summit in February 2022.