Managing Director Kristalina Georgieva’s remarks at Summit on the Financing of African Economies
By Kristalina Georgieva
Africa’s leaders and Africa’s friends have a common objective. For Africa to return to the remarkable development progress we have witnessed before the pandemic. And to take full advantage of the tectonic shifts in the global economy toward digital-driven, low-carbon and climate-resilient growth.
There is urgency to focus on financing Africa. Last year, the pandemic-caused recession shrank the GDP of the Continent by 1.9 percent – the worst performance on record. This year, we project global growth at 6 percent, but only half that 3.2 percent for Africa.
This is a dangerous divergence. It ought to be the reverse: Africa needs to grow faster than the world at 7 to 10 percent to meet the aspirations of its youthful populations, and become more prosperous and more secure.
Yes, together we have avoided a much worse economic crisis. Now, we must build on this initial momentum to bring the pandemic to a durable end and boost growth in Africa. In other words, to secure a fair shot: a shot in the arm, for everyone, everywhere, and a shot at a better future.
What is the price tag of this fair shot? At the IMF, we estimate Africa’s additional financing needs for an adequate COVID response at around $285 billion through 2025. Of this, $135 billion is for low-income countries. This is the bare minimum. To do more – to get African nations back on their previous path of catching up with wealthy countries will cost roughly twice as much. We are releasing a note today with further details.
These are large numbers. They may seem out of reach. But to quote Nelson Mandela: impossible until it is done. Here are three areas where we can act now:
First, end the pandemic everywhere. We can target vaccinating at least 40 percent of the population of all countries by the end of 2021, and at least 60 percent by mid-2022.
The economic case is overwhelming: for a cost of $50 billion, faster vaccination can result in higher global output of $9 trillion between now and 2025. This would require, among other priority actions, donation of 500 million vaccine courses in 2021 from countries with excess supply. And it requires boosting vaccine production capacity by 1 billion doses in early 2022.
Second, bilateral and multilateral development financing grants and concessional loans ought to go up. We will have a chance to hear from Africa’s development partners. Let me set the stage and talk about how we at the IMF will do our part.
Over the last year, we have swiftly ramped up our financing for the Continent, including providing 13 times our average annual lending to sub-Saharan Africa. And we are working with our membership to do much more. We have received support to increase access limits so we can scale up our zero-interest lending capacity through the Poverty Reduction and Growth Trust.
We recognize exceptional times call for exceptional measures. Our membership backs an unprecedented new allocation of Special Drawing Rights of $650 billion – by far the largest in our history. Once approved, which we intend to achieve by the end of August, it will directly and immediately make about $33 billion available to our African members. It will boost their reserves and liquidity, without adding to their debt burden.
And I am very encouraged by indications of several advanced and emerging market countries of their intention to on-lend part of their new SDRs at highly concessional terms. Doing this through mechanisms like the PRGT will magnify the impact of the allocation for countries in need. Over the course of the last year, we have built experience in facilitating the on-lending of SDRs – we managed to triple our concessional lending capacity as a result. This gives me confidence in building this source of low-cost financing to meet the substantial needs of Africa, including for vaccines.
And these efforts need to be complemented by debt relief. The DSSI helped. Now strong efforts are needed to make the Common Framework for debt resolution fully and rapidly operational. As you are aware, three countries have asked for treatment – Chad, Ethiopia and Zambia. I hope ongoing discussions of Chad’s debt treatment – the first case under the framework will get us off to a constructive start.
Third, actions at home. A crisis is an opportunity for transformational domestic reforms that increase domestic revenue, improve public services, and strengthen governance. For instance, digitalization can improve tax administration and revenue collection, and the quality of public spending. And with radical transparency, Africa can tap into new sources of finance such as carbon offsets.
There is ample scope for countries to encourage private investment, including in social and physical infrastructure. New IMF research, published today, highlights that domestic and international investors could provide at least 3 percent of GDP per year of additional financing by the end of this decade.
Reforms of international taxation can also support Africa’s growth. For a long time, we have been in favor of minimum corporate tax rates to reduce the race to the bottom and tax avoidance. And we strongly support an international agreement on digital tax, something France has been a leading voice for. It is important to secure fair distribution of tax revenues, so they can contribute to closing Africa’s financial gap.
To conclude, it is up to each and every one of us to step up. We know all too well from history what a shock of this magnitude can do if not countered forcefully and effectively – it can lead to a lost decade.
When I was a child, I would go to my father to ask him for advice when facing an important choice. His answer was always the same: do the right thing. We know what the right thing is: acting to reverse the dangerous divergence in economic fortunes Africa faces today. Let’s get it done.