The continent’s pandemic-response funding gap is likely to amount to some USD100 billion annually over the next three years. The international community especially the G7, the G20, and multilateral development banks – must take bold, innovative, and expeditious action to close it.
While cases remain under control in Cambo-dia, Denmark, Mauritius, and Morocco, they are on the rise in Ethiopia and parts of the United States. Infections have risen so sharply in France, Kenya, and Spain that new lockdowns may be im-minent. In Brazil and South Africa, the peak may be yet to come.
Few countries are prepared for the menacing autumn that lies ahead. This is particularly true in Africa, where the public-health and economic response has not come anywhere near matching the scale of the COVID-19 crisis.
So far, Africa has reported more than 1.2 mil-lion COVID-19 infections and over 30,000 deaths. Yet only 12 of Africa’s 54 countries have tested more than 10Pct of their population. And while community transmission increases, contact-trac-ing efforts remain tentative. Yet lockdowns cost the continent over USD65 billion per month. The International Monetary Fund now expects eco-nomic activity in Sub-Saharan Africa to contract by 3.2Pct this year.
While the COVID-19 crisis has spared no country, only some have been able to implement large-scale support schemes. The US quickly passed a USD2 trillion stimulus package, includ-ing direct payments to households, enhanced un-employment benefits, and financial support for ailing businesses. The United Kingdom’s USD400 billion support package has helped to keep busi-nesses afloat and unemployment in check, such as by paying a large share of furloughed employees’ wages.
France has also spent heavily to prop up its economy, including by bailing out its flagship air-line and automobile industry. And this is to say nothing of the USD889 billion recovery fund it recently agreed with its European Union partners. Japan’s economic stimulus package amounted to nearly USD1 trillion.
What all of these efforts have in common is a national or regional focus, which has been the prevailing approach to COVID-19. A welcome exception is the G20’s Debt Service Suspension Initiative. If fully implemented, the DSSI is sup-posed to provide more than USD12 billion in addi-tional liquidity to the 76 least-developed countries in 2020, and an additional USD14 billion in 2021.
Yet, so far, the DSSI has fallen short of expecta-tions, releasing only USD4 billion to participating countries. Creditor and debtor countries have not fully participated in the initiative, owing to factors like target countries’ lack of understanding of the process or their fear of a ratings downgrade.
All of these hurdles can and must be overcome. The Paris Club and the G20 secretariat are already working to address uncertainty. Ratings agencies must also be convinced to remove the specter of downgrades for DSSI countries, and debtor and creditor countries should be encouraged to par-ticipate.
But even if the DSSI is fully implemented, it will not be enough to close Africa’s pandem-ic-response funding gap, which is likely to amount to some USD100 billion annually over the next three years. To help cover the shortfall, multilateral lenders should step up.
So far, the African Development Bank, the IMF, and the World Bank have disbursed about USD60 billion to Africa. But, in order to frontload support for developing econo-mies over the next two years, they will need to expand their capital base significantly. That is why we are calling for a new replen-ishment round for the World Bank’s In-ternational Development Association, and additional resources for other multilateral development banks and the IMF.
Moreover, the IMF should consider a new allocation of its reserve asset, Special Draw-ing Rights. The IMF issued SDRs in the wake of the 2008 financial crisis, and the current crisis is even deeper and broader.
But a new allocation will take time. In the interim, the G20 countries should make available the USD129.7 billion in unused SDRs they already hold, in the form of loans to developing and emerging economies. The IMF should be responsible for devising how to allocate these existing SDRs to vulnerable countries.
The G20 itself can also do more. Capi-tal markets remain an important source of funds for fiscally strained governments.
Until recently, access to these markets en-abled emerging and developing countries with robust macroeconomic fundamentals to boost investment in growth-enhancing sectors. But the COVID-19 crisis has made this much harder.
To support these countries, the G20 should support the establishment of a li-quidity and sustainability facility, which can lower borrowing costs and help governments secure bridge financing and manage their liabilities. In fact, similar facilities in key OECD countries have helped to limit the pandemic’s financial and economic impact, including by preventing major liquidity cri-ses.
As for countries whose fundamentals were weak even before the crisis, they will need to pursue debt restructuring. Argentina is already on that path, and more are sure to follow. An updated framework will be need-ed to help them work through the process.
The simple fact is that some countries are far better equipped to respond to the COVID-19 pandemic than others, and in a deeply interconnected global economy, no one can escape this crisis alone. The inter-national community – especially the G7 and the G20 – must take bold, innovative, and expeditious action to support those in need. The solutions are known. But implementing them will demand global leadership.
This commentary is co-signed by the following African Union Special Envoys on COVID-19: Tidjane Thiam, Member, Glob-al Board of Advisers, Council on Foreign Relations; Donald Kaberuka, Board Chair, Global Fund; Trevor Manuel, Adviser to the President of South Afri-ca and former South African finance minister; Abderrah-mane Benkhalfa, former Alge-rian finance minister; and Strive Masiyiwa, Founder and Execu-tive Chairman, Econet Wireless International.
9th Year August 30 – September 30 2020 No. 90