The writer is under-secretary general of the UN and executive secretary of the UN Economic Commission for Africa
Covid-19 is akin to an unwanted house guest whose departure is unpredictable but whose cost keeps rising and creating tension. Collective action is needed to solve the problem. Coronavirus has exposed serious shortcomings in global public health systems, leading to relatively high death rates.
Africa is no exception. It took 146 days for Africa to register its first 20,000 deaths in January 2020, but it is now recording that same number of deaths every 15 days. Many economies are back into lockdowns, inflation has been rising — although the World Bank expects it to ease in 2021 and 2022 — and civil unrest is adding to the already combustible mix.
The US has an opportunity to support Africa’s efforts to tackle its problems in a way that saves lives and delivers a return on investment. It can help solve a global public goods problem and actually do well by doing good.
The new US administration is working to bring the pandemic under control and has proposed a $1.9tn stimulus package to support the US economy. President Joe Biden has addressed African leaders and put an Africa expert at the UN, in signs of stronger partnership. But the continent now needs a similar jab in the arm and boost to its economy.
In 2020, many African countries suspended corporate tax payments and provided social transfers to their citizens amounting to a combined 2 per cent of gross domestic product. Some 35 have received external support from the IMF and 31 have participated in debt-suspension programmes, potentially saving $9.2bn through to June 2021.
Africa’s buffers in 2021 are thinner than pre-pandemic. As the health crisis continues, the economic fallout brings mounting joblessness, rising hunger and the spectre of more unrest. An ambitious, differentiated response is needed, and the G20’s debt suspension initiative — which should be extended into 2022 — and the G20 common debt framework are a good start. As it rallies Congress behind a stimulus package at home, the new US administration could do the same for Africa and the rest of the developing world by supporting the creation of $500bn worth of new liquidity for the global economy through the IMF.
By issuing special drawing rights, the global economy approves the printing of money. This was last done in 2008/2009 during the financial crisis. It proved effective, especially because those who needed it most got the lion’s share based on a quota system. With the pandemic, the needs are greater and all nations — especially middle and frontier markets — require more liquidity support.
Under the allocation formula, all of Africa would receive $25bn of the $500bn SDR, and the G7 countries a total of $217bn, of which the US would receive $87bn. But G7 and G20 countries could voluntarily reallocate their SDRs to an interest-bearing facility to support low-income countries, such as the IMF’s Poverty Reduction and Growth Trust. This could be used for a market re-entry access vehicle that lowers sovereign borrowing costs and brings in the private sector. In this way, the SDRs can work for good.
A voluntary SDR reallocation would provide a path for high-income countries to demonstrate global solidarity while receiving a return on their investment based on SDR interest rates — and US leadership is pivotal on this. But if that were not motivation enough, remember that if some countries continue to struggle with new mutations of the virus, porous borders mean the whole world will remain vulnerable.
Inaction risks setting back all the development achievements of two decades and slowing the transition to a green economy. We must not stand back as the liquidity crisis morphs into a solvency crisis. Collectively, we can use SDRs to get the guest out of the room for good, without long-term scars. The G7 and the G20 can deliver on this promise.
Source: Economy - ft.com
