2023-05-02 15:00:00
Lhe major creditors, led by the International Monetary Fund and the World Bank, promised to increase their financing capacities during the spring meetings in Washington. In the face of multiple global shocks, it is an understatement to say that the needs of the African continent are enormous and that the amounts provided for are notoriously insufficient. After heads of state spoke out on the subject, a group of African ministers as well as international partners have mobilized in recent months to demand a reform of the global financial architecture. These claims come as, more and more, the two major institutions created by the Bretton Woods agreements (State of New Hampshire) at the end of the Second World War are seriously questioned both on their external impact but also on the functioning internal. Indeed, the World Bank and the International Monetary Fund must face a major adversary: China. On two fronts, they have to reckon with the Middle Kingdom: first, that of financing the economies of developing countries where the country led by Xi Jinping has clearly increased its presence and its impact; then, that of the debt where Beijing has become essential as regards the negotiations concerning the terms of repayment.
Covid-19 and the Russian-Ukrainian war have hardened the economic and financial environment for Africa. The pandemic in the wake of its severe consequences marked an important first turning point in Africa’s approach to financing and debt issues. And since the outbreak of war in Ukraine, the ensuing inflation, coupled with ever tighter economic conditions, has sounded like a game changer as well as a game-changing opportunity within financial institutions themselves. world.
Among the avenues that Africa would like to see quickly materialized, there is, beyond the urgent issue of debt, the subject of access to capital markets and that of the reallocation of special drawing rights (SDRs) from the IMF to, why not, the African Development Bank.
Can Africa really influence all these debates? What should be done so that we count more with Africa on these subjects at the global level?
Former adviser to Senegalese President Macky Sall and ex-administrator at the IMF for many African countries, Daouda Sembene has meticulously observed important data on subjects as varied as traditional financing, those taking into account climate constraints, credit agency ratings , DTS, etc. So many sources that allow him to publish authoritative analysis notes through his consulting firm AfriCatalyst. He agreed to answer questions from Africa Point.
The Africa Point: Despite some positive signals, such as the strong rebound in Chinese growth, global economic turbulence is still there, particularly in Africa. Inflation there is explosive and the risk of over-indebtedness is unprecedented for more and more States while financing conditions have tightened. How can these persistent discrepancies be explained?
Daouda Sembene: These shifts are linked in particular to the poor global economic situation characterized by an accumulation and succession of health, climate and geopolitical crises, also by increased risks of economic fragmentation and a tightening of monetary policy in developed countries. In addition to these external shocks, internal factors contribute to aggravate the vulnerabilities of certain countries and limit their ability to provide appropriate responses.
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Despite a proactive monetary policy by central banks, why have these measures had little effect on inflation in many African states? Does this mean that the tools introduced to reduce this inflationary situation work in some countries and not in others? Can African central banks, in this case, find their own solutions that correspond more to African realities?
The explanation may vary depending on specific country realities and circumstances, including their fiscal and monetary policy framework and exchange rate regime. That said, the persistent inflation can be explained by several factors including imported inflation through the strong dollar, the disruption of global supply chains as well as unfavorable weather conditions. In addition, some central banks have implemented measures that have tempered inflationary pressures even if they have remained strong. In some cases, the effectiveness of anti-inflationary measures has been limited by inefficient monetary policy transmission channels.
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What concrete can Africa expect from the commitments made at the spring meetings of the World Bank and the International Monetary Fund? What reforms should be undertaken at a time when these major international institutions are under strong pressure on aid effectiveness, issues related to the fight against poverty, climate challenges, etc.?
The spring meetings of the IMF and the World Bank are expected to provide concrete solutions to the problems currently facing developing countries, particularly in Africa. The deliberations should contribute to a reform of the global financial architecture that facilitates their access to more adequate, accessible, predictable and affordable development financing. This notably involves strengthening the lending capacities of the World Bank and the multilateral development banks. In the case of the World Bank, this must be accompanied by an increased tolerance for risk, in particular through the reduction of the ratio of equity to loans of the International Bank for Reconstruction and Development (Bird). Alternatively, some African ministers have expressed their wish to see the African Development Bank’s lending capacity increased through an injection of special drawing rights.
In addition, several African countries hope that concrete progress will be made to help countries in a situation of over-indebtedness to restore debt sustainability. To this end, a decisive reform of the common framework is urgently needed for countries such as Zambia, Ghana and Ethiopia.
As for the IMF, it is urgent to allocate the necessary resources to strengthen its lending capacity. This includes both the loans it currently grants at zero interest and those aimed at supporting countries vulnerable to climate change.
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Why does it seem more than necessary today to reform the global financial architecture?
The world is currently facing significant challenges: climate change, the pandemic, poverty, fragility, food insecurity. However, the global financial architecture is proving powerless to mobilize the resources needed to help meet them. This situation is even more worrying for many developing countries whose budgetary margins have been exhausted as much by their responses to the Covid-19 pandemic as by the consequences of the war in Ukraine. Under these conditions, the reform of the global financial architecture is not a luxury but a necessity.
Is the need to reform these institutions understood internationally, particularly in this changing global context? Is this debate taking place only in relation to Africa? The two institutions have announced that they are increasing their lending capacity to poor and developing countries to better help them in the face of climate change or pandemics. What can this concretely change when several initiatives going in this direction, such as the reallocation of SDRs or the restructuring of African debt, remain unfinished…
The need for reform seems to be recognized by both developing and developed countries. In fact, most of these reforms are driven by the G20 and it is important that other countries, particularly in Africa, can contribute to the renewal of the global financial system.
Increasing the World Bank’s lending capacity remains crucial both for the international community and for the developing countries they serve. For the international community, this would serve to mobilize additional resources to meet global challenges, particularly those related to climate change. For countries that borrow from the Bank, the volume of loans to which they have access is not adequate, hence the importance of strengthening it.
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