Loans backed by natural resources, a disaster

2023-10-12 07:51:44

Often putting their underground wealth as collateral to obtain the financing they need for public investments, developing countries incur significant losses. Faced with the cost of this financing system, which they consider to be a catastrophe, the African Development Bank (AfDB) and the International Monetary Fund (IMF) are calling on countries to renounce this type of debt.
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Public borrowing of large amounts, generally intended for infrastructure, and which are guaranteed by revenues to be drawn from the country’s natural wealth, loans backed by natural resources are of concern to the African Development Bank (AfDB) and the International Monetary Fund (IMF). ). Visiting Côte d’Ivoire on Thursday, October 5, 2023, the Managing Director of the IMF, Kristalina Georgieva, in her discussions with President Akinwumi Adesina, reaffirmed her institution’s support for the appeal launched by the IMF Group. African Development Bank so that African countries stop taking out loans guaranteed by their natural resources. Seizing the opportunity, “resource-backed loans lack transparency, are costly and complicate debt resolution,” President Adesina said, warning that if the trend were to continue, “it would be a catastrophe for the ‘Africa’. In response, the Fund’s management team, Georgieva assured, “will carry out a thorough assessment.” “We will speak with a strong voice to tell countries not to pave the way for predatory and enslaving lending. The issue will also be discussed at the global roundtable on sovereign debt, which brings together bilateral creditors, private creditors and borrowing countries,” she said. This round table is co-chaired by the IMF, the World Bank and the G20 presidency. The African Union joined the G20 in September as a permanent member. The IMF Managing Director said her visit to Africa comes at a time when the continent holds great promise for more dynamic growth around the world. “We often focus on the challenges facing the continent because it is here where the impact of climate change is most severe, where macroeconomic and financial instability and debt are amplified,” he said. she pointed out. “But we want to focus on opportunities in Africa for the simple reason that the capital is in the North and a young population is in the South, mainly here in Africa. If we don’t build a bridge so that capital can flow to where it’s needed most, it could lead to a bigger problem,” Georgieva continued. On the occasion, President Adesina commended the bold efforts made in 2021, at the height of the Covid-19 pandemic, by the head of the IMF and the US Treasury Secretary Janet Yellen, to support the global economy, in allocating $650 billion in Special Drawing Rights (SDRs).

Rerouting Special Drawing Rights (SDRs)

Africa, with a population of over 1.2 billion, received about $33 billion in SDRs, representing only 5 percent of the total allocation, the lowest share among the world’s regions. . The African Development Bank continues to lead discussions and develop models that will enable the re-routing of SDRs through multilateral development banks (MDBs). MDBs have the capacity to multiply the initial value of these resources by three or four times through leverage. Mr. Adesina thanked the IMF for collaborating with the African Development Bank team on an initiative that could re-route SDRs through MDBs. “Together with the Inter-American Development Bank, we have developed a model that preserves the IMF’s reserve asset status. If you reroute five billion dollars through the Bank, we will use the power of our leverage and that could easily turn into $20 billion in new financing for Africa,” detailed Mr. Adesina. He did not fail to indicate that this initiative would provide essential support to African countries, where post-pandemic debt remains a major challenge. “It is more serious for low-income countries that are members of the African Development Fund, the concessional window of the Bank Group. They are also the most vulnerable to climate change,” he warned. Georgieva, who has publicly supported the Bank’s SDR initiative, said the two institutions would continue to collaborate to find ways to deploy SDRs as hybrid capital. “I officially support the Bank’s efforts, and if they are successful, there will be a significant expansion of countries’ financial capacity, which will continue even beyond our years in office,” she said. During its Summit held in February 2022, the African Union approved the proposal from the African Development Bank Group regarding this mechanism.

QA October 12,