[ABIDJAN, Ivory Coast] These are very difficult days, as the world faces one of its worst challenges
ever: the novel coronavirus pandemic. And it seems almost no nation is
spared. As infection rates rise, so does panic across financial markets, as
economies drastically slow down and supply chains are severely disrupted.
Extraordinary times call for extraordinary measures. As such, it can no
longer be business as usual.
Each day, the situation evolves and requires constant reviews of
precautionary measures and strategies. In the midst of all this, we must all
worry about the ability of every nation to respond to this crisis. And we
must ensure that developing nations are prepared to navigate these uncharted
waters fully.
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Akinwumi Adesina Pic: AfDB |
That's why I support the UN Secretary-General Antonio Guterres' urgent call
for special resources for the world's developing countries.
In the face of this pandemic, we must put lives above resources and health
above debt. Why? Because developing economies are the most vulnerable at this
time. Our remedies must go beyond simply lending more. We must go the extra
mile and provide countries with much-needed and urgent financial relief --
and that includes developing countries under sanctions.
According to the independent, global think tank ODI in its report on the
impact of economic sanctions, for decades, sanctions have decimated investments
in public health care systems in quite a number of countries.
Today, the already stretched systems as noted in the 2019 Global Health
Security Index will find it difficult to face up to a clear and present
danger that now threatens our collective existence.
Only those that are alive can pay back debts.
Sanctions work against economies but not against the virus. If countries that
are under sanctions are unable to respond and provide critical care for their
citizens or protect them, then the virus will soon "sanction" the
world.
In my Yoruba language, there is a saying. "Be careful when you throw
stones in the open market. It may hit a member of your family."
That's why I also strongly support the call by the UN Secretary-General that
debts of low-income countries be suspended in these fast-moving and uncertain
times.
But I call for even bolder actions, and there are several reasons for doing
so.
First, the economies of developing countries, despite years of great
progress, remain extremely fragile and ill equipped to deal with this
pandemic. They are more likely to be buried with the heavy fiscal pressure
they now face with the coronavirus.
Second, many of the countries in Africa depend on commodities for export
earnings. The collapse of oil prices has thrown African economies into
distress. According the AFDB's 2020 Africa Economic Outlook, they simply are
not able to meet budgets as planned under pre-coronavirus oil price
benchmarks.
The impact has been immediate in the oil and gas sector, as noted in a recent
CNN news analysis.
In the current environment, we can anticipate an acute shortage of buyers
who, for understandable reasons, will reallocate resources to addressing the
Covid-19 pandemic. African countries that depend on tourism receipts as a key
source of revenue are also in a straightjacket.
Third, while rich countries have resources to spare, evidenced by trillions
of dollars in fiscal stimulus, developing countries are hampered with
bare-bones resources.
The fact is, if we do not collectively defeat the coronavirus in Africa, we
will not defeat it anywhere else in the world. This is an existential
challenge that requires all hands to be on deck. Today, more than ever, we
must be our brothers and sisters' keepers.
Around the world, countries at more advanced stages in the outbreak are
announcing liquidity relief, debt restructuring, forbearance on loan
repayments, relaxation of standard regulations and initiatives.
In the United States, packages of more than $2 trillion have already been
announced, in addition to a reduction in Federal Reserve lending rates and
liquidity support to keep markets operating. In Europe, the larger economies
have announced stimulus measures in excess of 1 trillion Euros. Additionally,
even larger packages are expected.
As developed countries put in place programs to compensate workers for lost
wages for staying at home for social distancing, another problem has emerged
-- fiscal distancing.
Think for a moment what this means for Africa.
The African Development Bank estimates that Covid-19 could cost Africa a GDP
loss between $22.1 billion, in the base case scenario, and $88.3 billion in
the worst case scenario. This is equivalent to a projected GDP growth
contraction of between 0.7 and 2.8 percentage points in 2020. It is even
likely that Africa might fall into recession this year if the current
situation persists.
The Covid-19 shock will further squeeze fiscal space in the continent as
deficits are estimated to widen by 3.5 to 4.9 percentage points, increasing
Africa's financing gap by an additional $110 to $154 billion in 2020.
Our estimates indicate that Africa's total public debt could increase, under
the base case scenario, from $1.86 trillion at the end of 2019 to over $2
trillion in 2020, compared to $1.9 trillion projected in a 'no pandemic'
scenario. According to a March 2020 Bank report, these figures could reach
$2.1 trillion in 2020 under the worst case scenario.
This, therefore, is a time for bold actions. We should temporarily defer the
debt owed to multilateral development banks and international financial
institutions. This can be done by re-profiling loans to create fiscal space
for countries to deal with this crisis.
That means that loan principals due to international financial institutions
in 2020 could be deferred. I am calling for temporary forbearance, not
forgiveness. What's good for bilateral and commercial debt must be good for
multilateral debt.
That way, we will avoid moral hazards, and rating agencies will be less
inclined to penalize any institution on the potential risk to their Preferred
Creditor Status. The focus of the world should now be on helping everyone,
as a risk to one is a risk to all.
There is no coronavirus for developed countries and a coronavirus for
developing and debt-stressed countries. We are all in this together.
Multilateral and bilateral financial institutions must work together with
commercial creditors in Africa, especially to defer loan payments and give
Africa the fiscal space it needs.
We stand ready to support Africa in the short term and for the long haul. We
are ready to deploy up to $50 billion over five years in projects to help
with adjustment costs that Africa will face as it deals with the knock-on
effects of Covid-19, long after the current storm subsides.
But more support will be needed. Let's lift all sanctions, for now. Even in
wartime, ceasefires are called for humanitarian reasons. In such situations,
there is a time to pause for relief materials to reach affected populations.
The novel coronavirus is a war against all of us. All lives matter.
For this reason, we must avoid fiscal distancing at this time. A stitch in
time will save nine.
Social distancing is imperative now. Fiscal distancing is not.
*Akinwumi A. Adesina is President of the African Development Bank Group |
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