African governments are asking for a debt standstill in the face of coronavirus. The poorest countries want substantial portions of their borrowing to be wiped clean.
Critics will cry “moral hazard” and point out that we have been here before. From 1996, when a big debt relief campaign was launched by the World Bank and the IMF, nearly 40 low-income countries, most of them African, had much of their debt erased. Some of those same nations have since gone on a borrowing binge. They have had loans from western donors and multilateral agencies, from China, which now accounts for nearly one-fifth of African debt, and from commercial lenders. Not all of that money has been well spent. Even before coronavirus, some countries were edging towards a debt crisis.
Surely, critics protest, the world shouldn’t be encouraging such behaviour? Don’t we have enough to worry about in our own countries right now? Anyway, why throw good money after bad? As one Financial Times reader put it sarcastically in the comments section of a recent article: “Let’s pour yet more money into this bottomless sinkhole.”
This view is wrong-headed for several reasons, none of which has to do with charity or goodwill, both in short supply. Africa desperately needs financial breathing space to fight Covid-19 and now is the time to provide it. Here’s why.
First, African economies are collapsing through no fault of their own. Until two months ago, eight of the 15 fastest-growing economies in the world were African. Now, they are suffering an exogenous shock. The virus began in Wuhan; it was brought to Africa mainly by travellers from Europe. More important, it was powerful leaders in Asia, Europe and North America who shut down the global economy to save the lives of their citizens. As a consequence, according to the World Bank, Africa will be plunged into its first continent-wide recession in 25 years. The price of commodities has collapsed. Remittances have dried up. Tourists are staying away. Investors have withdrawn billions of dollars, forcing currency depreciations that will spur a potentially ruinous rise in food prices.
On top of this, many African countries have imposed lockdowns of their own. People in the informal settlements of Nairobi, Kinshasa or Lagos have neither the money to stock up on food, nor the refrigerators in which to store it. They need to hustle every day to feed their families. If strict lockdowns lasted a long time, many people would starve.
Second, debt write-offs at the start of the century helped trigger the most hopeful period in Africa’s post-independence period. The idea that they were a waste of money is false. The last 20 years have been bumpy to be sure. But they have generally been positive. Most African economies have been growing. There have been huge improvements in basic health. Life expectancy has risen more than 10 years since 2000. Child and maternal mortality rates have fallen fast.
Of course, not all money has been well spent. Some has been wasted, some stolen. But governments are more accountable than they were. Civil society is stronger. If money is misspent, people shout about it.
New borrowing has transformed infrastructure. Power is still a problem in many countries. But roads, ports and telecoms networks are immensely better. Mobile phone penetration is high, bringing information and basic banking to the very poorest. These are the indispensable building blocks of development. The talk a few years ago of Africa Rising was overdone. But the continent is no longer sinking. Many countries have made discernible progress in alleviating poverty and providing opportunity. This is now in danger.
The third reason for supporting Africa now is the most selfish. If Covid-19 becomes endemic there, it will inevitably find its way back to the northern hemisphere. If Europe worries about immigration today, how much worse will it become if these economies have collapsed and disease is raging?
The amount African governments are seeking in debt relief — $44bn this year — is trivial. It is a rounding error compared with western bailouts. Some suggest Africans need to stand on their own feet. Do they say that of the millions of their own citizens thrown out of work?
We do not yet know whether the young population of Africa will be spared the worst of the disease or whether the virus will overpower weak health systems. What we do know is that for small amounts of debt forbearance — from China and the west — African countries will be given a fighting chance to beat this pandemic. If they win, we all win.
david.pilling@ft.com
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Source: Economy - ft.com
