African Heads of States are appealing to the international community to make available additional resources to enable them fight the COVID-19 and the climate change crises. According to the Leaders, the issuance and redistribution of Special Drawing Rights (SDRs) worth $650bn will help African governments leverage much cheaper financing for longer-term recovery and development.
“We propose that an on-lending of at least 25% of SDRs, corresponding to $162bn is agreed upon to boost the COVID-9 recovery and fight the climate crisis”.
Following from this, the Leaders highlighted 3 important areas that require urgent financing for which the SDRs is critical.
“$100bn to replenish the Poverty Reduction and Growth Trust (PRGT) and possibly IDA-20 for Low-income countries (LICs). At least $15bn towards a Vaccine’s facility. $30bn towards the Liquidity and Sustainability Facility (LSF)– as part of the Middle-income response which includes a climate window”.
Furthermore, they noted that SDRs could also provide additional funding for capitalization of African public development banks. This is “in the spirit of finance in common”. The African Leaders believe that these measures will facilitate the disbursement of more zero interest loans.
It will also aid the mobilization of scaled-up concessional financing for low income countries, of which 36 are in Africa. According to the statement, these countries desperately need these resources to respond to the crisis
Speeding up vaccine rollouts
Also, they highlighted that these resources will help speed up vaccine rollouts across the continent and save lives and livelihoods. Likewise, they indicated that this will better integrate African market access countries into international financial markets. Consequently, it will provide support to the global push towards investment in SDGs and climate action.
“The market access rates of African sovereigns are made up of a liquidity premium and a default premium. One is a market distortion and the other a reflection of economic fundamentals. We can level the playing field by solving the market distortion.
“In advanced economies this has been done via the creation of a repurchasing or ‘repo’ market. Today the repo market in the US stands at 4.5 trillion USD and 7 trillion USD in the Euro area”.
The Leaders noted in a statement that the crisis offers an opportunity to create a repo market for Africa. They noted that Africa should create this market through an SDR backed Liquidity and Sustainability Facility (LSF).
The LSF can also unlock the opportunity for African countries to be more engaged in the issuance of green bonds. According to them, less than 1% of these issuances are currently from Africa. As a result, they stated that this can help finance the 500 billion investment required to reach full electricity access for Africa by 2030.
Call for support from the French summit
Moreover, the Leaders urged the French summit to support this as a long-term sustainable way to accompany MIC development. They said that “with over 150 billion in Eurobond issuances the cost of the liquidity premium on the continent is onerous”. This is “undermining long term growth and stifling ambition”.
“Rising debt sustainability issues are a clear indication of this. We call on the French, the G7 and the G20 to work with us to build long term sustainable institutions which can fast-track Africa’s development”.
Also, the Leaders expressed worry about the resurgence of the virus in some countries. They highlighted that this could set off another round of growth contractions across the world.
“Food prices are set to soar across Africa as 11% of food imports are from India and Brazil- another COVID disrupted food producer. Critically, 25% of Africa’s rice comes from India. But even more devastating is the freeze in vaccine availability. These kinds of black swans are what we must be focus on today to protect growth, lives and livelihoods”.
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