AFRODAD,CSOs says 9 African states in debt distress,15 at high risk
By: Femi Mustapha
African Forum and Network on Debt and Development (AFRODAD) and other Civil society organizations (CSOs) have lamented that as of 2024, nine African states are in debt distress, a further 15 are at high risk, and 14 are at moderate risk.
This was contained in a statement signed by Okoa Uchumi for AFRODAD Coalition and Other partners which include AERC, MEJN-Malawi, ANEEJ, Nigeria, UDN-Uganda, CTPD-Zambia, TISA-Kenya, CROSET-Chad, and LAREM-Senegal, and made available to the media in Kaduna today.
The statement, which is the aftermath of the 59th African Development Bank (AfDB) Group Annual Meeting in Nairobi, Kenya, stated that out of $10 collected in Africa, between $6-$8 goes to debt repayment and debt servicing, thus making it impossible to service basic needs including education, health, and social sectors
The group stated that the AfDB AGM with Africa’s Transformation: the African Development Bank, and the Reform of the Global Financial Architecture”, added that the theme is set against the realization that despite sustained economic growth over the past two decades, Africa’s economic transformation remains a work in progress with a lot more to be done.
AFRODAD and its partners noted that the Bank carries both implicit and explicit responsibilities to provide the necessary development financing for sustainable economic development and social progress for African countries.
“We therefore ask that the Bank should position itself as an indispensable player when it comes to the need to influence changes in the global financial architecture, including the SDRs allocation and rechanneling process.
“While these are happening, the lopsided global financial architecture remains unresponsive to Africa’s needs, which was glaringly evident during IMF’s issuance of its Special Drawing Rights (SDRs) in 2021 that saw Africa only receive $33 billion, a meager 5 percent of the total $650 billion issued while countries such richer countries, the G7 included, received more than $200billion, despite not having the most need of the resources.
“The IMF quota allocation system that pre-determines SDR allocations affirms the predisposition of an unfair global system that favors developed countries over developing countries in financial and decision-making.
“In addition, while African countries benefited from their SDR allocations to boost their liquidity reserves, many more spent it on repaying debt.
” At least 35 countries spent $ 14 billion to pay down debt due to IMF while it could have been used to buffer it from the difficult economic period during the COVID-19.
“A reform of the global financial architecture, therefore becomes necessary to unlock the potential of SDRs towards economic transformation for countries that are in most need and most vulnerable to climate shocks.”
“It is against this background that, the African perspective should be included in the call for reform on the Special Drawing Rights Allocation System about the need to ensure that it is fit for purpose.
“AFRODAD and its partners therefore demand that the African Development Bank propose a new tool called the Hybrid Capital Instrument (HCI). According to AfDB, the HCI will enable the Bank to multiply the SDR contributions by three or four times and keep them at the IMF as part of its balance sheet.
“The Bank will then borrow money in hard currencies from capital markets and lend it to members in their preferred currency.
“With increased debt crisis in Africa, it, therefore leaves a lot to be answered by AfDB in the criteria and system whether it will act as a loan facility in distributing SDRs to its member states or rechannelling at a zero-interest rate.
We believe that there’s a need to allocate the SDRs on a country’s need basis and sectorial basis to provide a niche for development acceleration in Africa
“Africa Development Bank should continue championing the reform of the SDRs allocation system to reflect the need rather than economic might.
“This is because the appropriate use of SDRs will help to solve liquidity problems at best, but emphasis also needs to be given to comprehensive debt management strategies to minimize the debt crisis in Africa. Reforming it to include factors like indebtedness and poverty would ensure a fairer allocation of SDRs based on countries’ challenges.
“For instance, there is a need to expand the scope of the SDRs quota system beyond GDP. Available reports estimate that African countries utilized 85% of their allocated SDRs in 2021 compared to their developed counterparts.
“This demonstrates the need for a review of the SDR quota system to take into consideration the development needs of each country or region regarding SDR allocation.
” International financial institutions and the developed countries should commit to an open and transparent financial system that would promote inclusive growth. However, debt settlement in Africa, especially outside the Paris Club processes, has often experienced problems and delays, with
costly economic consequences
“There is a need to adopt urgent reforms around SDRs allocation governance and reporting framework: SDRs allocations come as a general reserve that is tied to no specific development purposes.
This makes it difficult to track and report its uses.
“Besides changing the quota formula, institutional reforms on how IMF operates the SDRs should be given greater attention to shift the lopsided Global Financial Architecture to work for all economies equally” the statement concluded.
