Strive Masiyiwa is among a group of eminent Africans lobbying for the suspension of African debt payments, ahead of key meetings of the G20 this week that will decide on over US$44 billion of the continent’s debt.
The Econet founder, alongside former Credit Suisse CEO Tidjane Thiam and Ngozi Okonjo-Iweala, the former Nigerian finance minister, are pushing for a two-year stay on US$115 billion of sovereign African debt owned by the private lenders. This, they say, will help poor countries respond better to the coronavirus crisis.
Masiyiwa also says African countries should be allowed to draw down on their special drawing rights (SDRs) with the IMF. SDRs are a kind of special reserve held at the IMF, and they are distributed according to a member country’s shares in the Fund.
“I’m part of a group that has been advocating that SDRs of US$100 billion be released for Africa, unconditionally. The emergency we are in warrants such a measure, as these large nations have themselves shown in pumping so much stimulus into their own economies,” Masiyiwa wrote on a Facebook post at the weekend. “I personally believe that the release of these SDRs should be directed at Africa’s domestic private sector.”
According to Masiyiwa, international debt relief must also be accompanied by governments in turn paying what they owe to local companies.
“We need relief of both international and domestic debts. Bilateral and multilateral partners must give Africa debt relief, which will allow us to have more foreign exchange. My own favourite is domestic debt relief: governments and state-owned companies immediately pay their debts to businesses. This will pump liquidity into the productive sector overnight, and create real jobs,” Masiyiwa said.
While Western economies have poured trillions into their economies, African countries do not have the same resources.
“There is, however, a clever way that economists have found to unlock this kind of stimulus; the big industrial countries (US, China, EU, Japan) can allow Africa to access what are known as Special Drawing Rights (SDRs) issued through the IMF. This would not be debt but is a clever financial instrument,” Masiyiwa says.
“We are now calling for $15bn to be released by institutions like the World Bank and African Development Bank to support a major investment drive in public health.”
Sub-Saharan Africa will this year suffer its first recession for 25 years as a consequence of the coronavirus outbreak, a World Bank forecast says, with the region’s economy expected to shrink as much as 5.1%. The World Bank says Africa could need an economic stimulus of as much as $100bn to help it recover from the impact of COVID-19. An African Union report estimates that 20 million jobs across the continent are “threatened with destruction”.
Debt servicing will retard African economies already limited capacity to react to the coming economic crisis caused by the virus.
In just the two years between 2015 and 2017, Africa’s external debt payments doubled from an average of 5.9% of government revenue to 11.8%. At 32%, the proportion of debt owed to private lenders is almost equal to the 35% owed to multilateral institutions.
The IMF and the World Bank have already called for the G20 rich economies to suspend debt payments from poor countries from May 1 until June 2021.
Masiyiwa says the global pandemic will hit commodities, on which many African economies depend.
“The global shutdown means Africa will not receive most of the money it was expecting from sales of commodities like oil, cocoa, copper etc. It is not unreasonable to ask our lenders to give just a two-year breather, when the problem is not of our own making. China and Europe are our biggest trading partners, and also our biggest lenders.”
Zimbabwe’s public and publicly guaranteed external debt stood at US$9.8 billion in 2019, according to IMF data.
On Tuesday, the IMF announced it would grant debt service relief to 25 low income countries under the IMF’s revamped Catastrophe Containment and Relief Trust (CCRT). The list of countries includes 19 from Africa. Zimbabwe is not among these, because it cleared its arrears with the IMF in 2016.
“This facility provides grants to cover upcoming debt services to the IMF. Now given that Zimbabwe’s debt to the IMF is zero, there is no debt service to pay and hence this facility would not be of any use. We are therefore exploring alternative funding facilities,” IMF resident representative Patrick Imam has said.
Zimbabwe used its SDR allocation to pay off its IMF debt in 2016. In 2009, the country had received US$400 million worth of SDRs from the IMF. Currently, Zimbabwe has a quota of SDR 707 million.
While Zimbabwe has cleared its arrears with the IMF, the country as of 2019 still owed US$687 million to the AfDB, US$1.4 billion to the World Bank and US$322 million to the European Investment Bank. These arrears, under global lending rules, mean the country cannot qualify for new aid from any of the funds. Zimbabwe also owes other bilateral lenders.