ECA, African Finance Ministers and IMF discuss changes needed to global financial architecture to support economic recovery on the continent

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Dr Vera Songwe, United Nations Under-Secretary-General and Executive Secretary of the Economic Commission for Africa yesterday met African finance ministers and IMF Managing Director Kristalina Georgieva to discuss how African member states can effectively use SDRs to support their efforts for a green, sustainable and inclusive recovery from the Covid 19 pandemic.

African finance ministers have recognized that the unprecedented issuance of the equivalent of $ 650 billion in SDRs offers a unique opportunity to improve fiscal buffers in most countries. However, on the basis of the current allocation formula, the resources directed to the African continent are not commensurate with their financing needs. All the more so as African economies are increasingly feeling the crunch of the pandemic on public finances.

Reiterating their commitment to national policy reforms to optimize the use of resources and strengthen the social contract between government and citizens, the finance ministers also highlighted the following priorities when discussing the global financial architecture to ensure the effectiveness of the recovery:

a)Innovative sustainable financing mechanisms: African ministers expressed concern that previous pledges to mobilize the $ 100 billion pledged had not been kept and called for more financial innovations to facilitate access to essential resources needed to invest in a green recovery. This included supporting the capacity of African countries to issue green and blue bonds. The need to tackle the high debt levels of African countries was also highlighted, with debt-for-adaptation conversions offering potential avenues to address this issue.

b)Lend SDRs to low-middle-income and vulnerable countries through the Poverty Reduction and Growth Trust Fund: They called for at least 25-30% of the US $ 650 billion in SDRs to be retroceded to support low and vulnerable middle-income countries. The on-lent SDRs should support access to vaccines, finance the IMF’s Poverty Reduction and Growth Trust Fund which serves all low-income countries.

vs)Improve access to vaccines: Establish a SDR-funded vaccine procurement mechanism to urgently address growing vaccine inequalities around the world. Support efforts to establish regional vaccine manufacturing centers to ensure sustainable supply, especially for high-risk groups.

D)Support affordable access to capital markets: Sovereign bond yields are excessive and incompatible with the market fundamentals of African economies which need improved and more affordable market access. The Liquidity and Sustainability Facility (LSF) would be particularly needed to support the recovery in middle-income countries with strong macroeconomic fundamentals. The LSF could stimulate investments in sustainable development in Africa: currently, Africa only attracts 1% of the global green bond market, estimated at more than 500 billion dollars. The LSF can catalyze additional investors by offering preferential rates on green bonds. The on-lent SDRs could help launch this facility and finance ministers called on the IMF to support this proposal.

e)Support the establishment of an RST: Ministers approved the Fund’s proposal to on-lend part of the SDRs to support the establishment of a resilience and sustainability fund aimed at providing long-term financing to low- and middle-income countries.

F)Carbon pricing: African ministers also took the opportunity to call for the establishment of a global carbon price aligned with the Paris Agreement. African countries contribute the least to global emissions while preserving some of the most important areas of biodiversity that are critical carbon sinks for all humanity. As such, African countries should be given the opportunity to take advantage of this critical role to raise finance to invest in climate resilience and green recovery for the benefit of their citizens. ECA assessments have shown that an increase in the global carbon price to $ 50 per tonne (current prices are typically less than $ 5 per tonne) could leverage up to $ 30 billion in additional resources in three sectors only: climate smart agriculture, clean cooking solutions and investments in renewable energies.

g)Rcapitalize development banks: support the recapitalization of multilateral development banks, in particular the AfDB and Afreximbank, and support the establishment of an African financial stability mechanism; and leveraging private development finance through capital markets.

h)Restructure the debt of the poorest countries: Continue to work on debt restructuring initiatives such as the G20 Common Framework, in collaboration with countries, to propose mechanisms that accelerate implementation for countries in need of debt restructuring.

Distributed by APO Group on behalf of the United Nations Economic Commission for Africa (ECA).

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