African countries urgently need a massive injection of resources to respond to the COVID-19 pandemic and the resulting economic fallout. The World Bank estimates that Sub-Saharan Africa will enter its first recession in 25 years, costing $79 billion in lost output, and pushing an additional 26-39 million people into extreme poverty. UNECA estimates the emergency health response to COVID-19 will cost African countries $11 billion. Overall, the IMF and World Bank estimate that African countries will need $114 billion in 2020 alone.
What we are seeing is a liquidity crisis caused by a global pandemic. A comprehensive plan is immediately needed so that African governments have the cash to respond to the pandemic and stabilise their economies. A new allocation of special drawing rights (SDR) – alongside a mechanism for richer countries to transfer their SDR to poorer countries – and a debt standstill with the full participation of bilateral, multilateral and private creditors have to be at the heart of this blueprint. Beyond this, new tools are needed to enable countries to continue to access financial markets at low cost.
While all of these components are essential to help the continent weather the storm, this paper focuses on a proposal for multilateral debt service suspension. The G20 responded quickly with bilateral debt suspension for the poorest countries through the Debt Service Suspension Initiative (DSSI). But multilaterals and private creditors are yet to follow suit. Our analysis shows that as of mid-July 2020, the World Bank had received $1.7bn in debt repayments from DSSI countries, but committed only $1.9 billion in new funding for the response. Of this only $250 million was disbursed by the end of May (the most recent available data).
Countries should not be forced to choose between meeting debt payments or responding to COVID’s health and economic emergencies.
G20 Finance Ministers should:
- Extend the bilateral debt standstill until the end of 2021 to give greater security and ability to plan for use of the funds. This would free up $22 billion for fighting the crisis and supporting recovery in 2021.
- Task the IFIs to respond within 30 days on how they could support a comparable multilateral debt standstill.
- Task the International Monetary Fund to report within 30 days on steps that could be taken to support a debt standstill for private creditors.
- Task the World Bank to respond within 30 days on how it intends to backfill IDA and other accounts for future development spending.