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Sunday, April 05, 2020 / 02:27PM / By Akinwumi A. Adesina / Header Image Credit: Tom's Guide
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.
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.
About
Author
Dr. Akinwumi A.
Adesina is President of the African Development Bank Group.
Related Links
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