Vera Songwe, head of the UN Economic Commission for Africa, is co-ordinating an appeal by African finance ministers for $100 billion a year for the next three years to support stricken economies on the continent. This is a fraction of the fiscal and monetary stimulus already delivered in the U.S. and Europe when compared to Africa’s combined annual economic output of about $2.6 trillion, she says.
Although Songwe wants the initiative to be expanded to benefit more countries, she said that a loan guarantee facility to reduce poor countries’ borrowing costs — which are already prohibitively expensive for many with low credit ratings — would be more powerful. The “ideal private sector contribution to this crisis” would be for investors to agree “to make less income so that countries can access the resources they need more cheaply,” she said.
The question is how to fund such a facility. The IMF could launch more of its so-called special drawing rights (SDRs) — a form of proxy reserve asset — but that possibility has been vetoed by the U.S. Still, Songwe has appealed to G20 central banks to back the idea. Ghana supports the idea of using SDRs to help cushion emerging economies’ finances and has been frustrated at what it sees as U.S. opposition to the proposal.
Ozy.com, an online news media reports that so far, 43 countries have applied for debt suspensions through the initiative, delaying about $5.3 billion in payments this year — less than half of the $11.5 billion available, according to the World Bank.
Critics say the debt service suspension has been hobbled by confusion and disagreement over which lenders should take part and on what terms. Private-sector creditors, including commercial banks and bondholders, are not involved and have continued to receive repayments. China, which has emerged as a significant source of lending to poor countries in recent years, has contributed only partially.
Only three of the 43 countries involved have asked private creditors for comparable debt relief, and no agreements have yet been reached, according to the IMF.