Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva has raised fresh concerns that up to 20 countries in sub-Saharan Africa are close to debt distress, pushed by first, COVID pandemic impact and the new spillover effects of the war in Ukraine.
She raised the concerns during her press briefing Wednesday on the global policy agenda at the ongoing Spring meetings of the IMF and World Bank which are majorly holding virtually.
Georgieva is further worried that the Russia -Ukraine war is fast translating to hunger in sub-Saharan Africa, which the fund slashed its growth forecast to 3.8% on Tuesday, citing new headwinds.
Responding to a particular question on Africa, she stated: “We have seen Africa push back because of the COVID- induced crisis in its development. As it was recovering, it’s now hit by the consequences of the war in Ukraine.
“And these consequences are quite severe- growth projections revised down for many countries. Out of 54 countries in the Africa continent, 12 are exporters, the rest are all importers and are hit by high energy prices.
“But the most troubling impact is of high food prices and food insecurity. To put it very simply, a war in Ukraine is translating to hunger in Africa.”
According to her, what must be done in terms of three avenues of action includes first of all, to protect countries and people from the risk of food crisis.
“We know that bringing the international community together to provide financing and also to guarantee export of food and to build agricultural productivity in Africa, including measures right now to get farmers to produce more is absolutely paramount.
Read also: COVID-19: Side effects, apathy discourage 6m from taking second dose
The second line of urgent action includes the huge burden of debt in sub-Saharan Africa. “Twenty countries are already close to debt distress, and with interest rates going up, this burden of debt is intolerable, so working to get debt restructuring early is a priority for us.”
The third is helping Africa on the longer term challenges – top of which is climate change. “We have seen the pictures in South Africa, we have to recognize that Africa contributes very little to the problem of climate change, but it’s extremely vulnerable, so a massive approach including supporting our new resilience system sustainability trust is needed for Africa,” the IMF Chief stressed.
But earlier in her opening speech, she recognized that the world is now in what she called ‘a consequential moment.’
“We are facing a crisis upon a crisis- a war, on top of a pandemic. It’s like we have been hit by another storm before we have recovered from the last one.”
She said the result is a massive setback for the global Economy, as indicated in the IMF cut of its earlier global growth forecast to 3.6% for 2022.
According to her, the downgrade of supply to 143 countries, caused largely by Russia’s invasion of Ukraine and the shock wave it has sent around the world, is troubling.
But there are other significant consequences going far beyond Ukraine – accelerated inflation – which has become a clear and present danger for many countries with rising food and fuel prices straining the budgets of ordinary families to a breaking point; financial tightening because of the need to counter inflation, hitting countries with high debt the hardest; and frequent wide ranging lockdowns in China causing bottlenecks in global supply chains.
“These are additional dark clouds weighing on the global economy and there is one more important crisis hanging over our head – the risk of geopolitical fragmentation which could jeopardize the development gains of the world’s 75 years and also leave us unable to deal with the current crisis and address other global challenges such as climate change.”
She said that in dealing with the present global storm, the IMF has presented its Global Policy Agenda, and is analyzing the repercussions of the crisis, and also offers a way forward in terms of immediate response and longer term efforts to boast resilience to shocks to still come.
According to Georgieva, the “immediate hope must be for the war to end.
“That would have the single most positive effect on the global recovery right now.”
But in the meantime, everything must be done to help Ukraine and other heavily affected countries.
She said the Fund has already provided $1.4 billion in emergency financing to Ukraine, and created a special account through which others can securely contribute.
She also disclosed her talks just a few days ago, with Ukrainian President Zelensky on a massive reconstruction effort that will be needed as well as the immediate financial gap for the functioning of the economy that has to be filled.
The IMF is also working to help the impact on Ukraine neighbors which are generously hosting a large number of refugees.
And of course because COVID has not disappeared, she urged that the fight against the pandemic must not be relaxed.
“With our partners, we have proposed comprehensive tools to include vaccines, testing and antiviral treatments which can be deployed everywhere at the modest cost of $50billion this year, $10 billion in subsequent years..
On the issue of global inflation concerns, Georgieva said this must be tackled under three pressing priorities. First is that it requires decisive actions by Central banks, which must focus on a positive economy and adjust policies as needed. “And as they tighten, major central banks should communicate clearly, mindful of the spillover risks to vulnerable emerging and developing economies,” she urged.
Second, is the high rising global food prices which are particularly concerning especially in poor countries where there is a growing risk of food crisis and food insecurity.
“We need International action and we need it now.”
The third is tackling inflation through monetary policy targeting which raises the cost of servicing debt for low income countries, as the burden has reached 50 percent of GDP and that places 70 percent of countries at or near that distressed situation.
To address that, countries need policies that help their budget back on track, while providing targeted assistance to the most vulnerable and they can do that with more equitable tax policies.
At the same time, international support is essential. Here the IMF has urged that the G20 common framework for that treatment must be improved with clear procedures and timelines for debtors and creditors. It should also be expanded to other highly indebted vulnerable countries.
These immediate responses will not only lessen the impact of today’s double crisis, but to be ready for tomorrow’s challenges, we need reforms to build resilience, she stated.
For the economy, by implementing far reaching structural reforms to secure the foundation for sustainable growth and job creation, the IMF is stepping up to help its members on all these fronts with policy advice and capacity development and with its financial capacity, has deployed around $300 billion, and has some extra $700billion available to deploy.
On top of that is the $650 billion in SDR, which it disbursed to its members last summer to enable them respond to the current crisis.
“Despite the storms overhead, we will work together to bring all safely towards the shore,” she assured.
