Calls for a fair international financial architecture grew on Monday (May 16) in Dakar, Senegal.
The call was made by President Macky Sall during the Annual Conference of African Ministers of Finance, Planning and Economic Development, ECA’s largest annual event where participants debate key issues concerning the development of the continent. . It also discusses the performance of the think tank in carrying out its mandate.
The Senegalese leader who is also the chairman of the African Union did not mince his words.
He highlighted the injustice that Africa continues to suffer due to, among other things, the existing unjust international financial architecture.
The hybrid event jointly organized by ECA and the Government of Senegal is themed “Financing Africa’s Recovery: Innovating”.
Sall noted that given the prevailing conditions, the parameters that enable global economic governance are outdated and unsuited to reality.
In addition to the devastating impact of the Covid-19 pandemic, Africa is facing a new food, fuel and fertilizer crisis that is reverberating around the world as the Russian-Ukrainian war creates disruptions in global trade and basic products. Food prices would be 34% higher than at the same time last year. Crude oil prices rose by around 60% while gas and fertilizer prices more than doubled.
African economies are in a general state of fatigue, Sall said.
“The least we can say is that our economies are in a state of general fatigue, the extent and duration of which, unfortunately, we cannot yet measure. And that’s a problem,” President Sall said.
Sall reiterated his call for, among other things, a more active fight against tax evasion and illicit financial flows. The AU chairperson recently called for the creation of a pan-African credit rating agency, noting that the arbitrary nature of the rating system by international organizations made it more expensive for African countries to borrow in global markets. debt.
Overall, when talking about an international financial architecture that is not fair and not in Africa’s interest, experts have referred to the “African premium” in which some countries are similarly ranked, like Morocco and Greece, but the former pays more. interest rates just because it’s in Africa.
The establishment of the International Financial Institutions (IFIs) under the unfavorable quota system favors wealthy nations, which are then used to justify successive smaller allocations and votes to Africa whose needs far exceed those of wealthier nations. rich.
President Macky Sall delivers remarks at the Annual Conference of African Ministers of Finance, Planning and Economic Development in Dakar on May 16.
In March 2021, frustrated by slow access to Covid-19 vaccines and funding for vaccine equity, African finance ministers unanimously agreed to draw on reserves from the International Monetary Fund (IMF ). At the time, ministers stressed the need for a swift, bold and positive response on Special Drawing Rights (SDRs) in the range of 500-650 billion to stop the devastating impact of the pandemic on the continent. and increasing Africa’s access to liquidity. An SDR is an interest-bearing international reserve asset created by the IMF to supplement other reserve assets of member countries.
In August 2021, the IMF approved a general SDR allocation equivalent to $650 billion (about SDR 456 billion) to boost global liquidity. The newly created SDRs were credited to IMF member countries in proportion to their existing Fund quotas. About $275 billion (about SDR 193 billion) of the new allocation would go to emerging markets and developing countries, including low-income countries.
Experts note that recent new SDR allocations are aimed at short-term balance of payments challenges and not Africa’s long-term investment needs such as infrastructure. Even if developed countries can surrender these SDRs, experts say, they can still recall these SDRs on short notice, forcing Africa to borrow again somewhere to repay.
Then there are conditionalities that systematically prevent Africa from meeting its most basic and urgent socio-economic needs, such as health, when the IFIs call for fiscal consolidation.
During a working breakfast with African finance ministers on Monday, Vera Songwe, the executive secretary of the United Nations Economic Commission for Africa (ECA), also noted that the continent needs a change in the global financial architecture.
She said, “And we need to make sure that changes to the system are in Africa’s interest and not against it. These changes may not happen tomorrow, but the discussions need to happen today.
“What can we do to have a stronger voice to ensure that the new instruments we seek are aligned with the development system we want? »
United Nations Under-Secretary-General and Executive Secretary of the Economic Commission for Africa, Vera Songwe, addresses the 54th session of the Conference of Ministers of the Economic Commission for Africa in Dakar.
Amadou Hott, Senegalese Minister of Finance and Economy, said the international financial architecture is not fair for Africa.
“The cost of capital is an example, where African sovereigns pay up to 200 basis points more than their counterparts with a similar risk profile. How can we get the right price, as risk ratings are affected by subjective criteria. The same intrinsic risk will get a different rating elsewhere,” Hott said.
Serge Ekoué – President of the West African Development Bank, said: “Our commercial banks, our development banks, our companies, they are all undercapitalised. This is a key question. So unless we solve the capital problem, we won’t find solutions in raising capital. »
Key Features of Inequity in the Global Financial Landscape
On Tuesday, Douglas Kigabo Bitonda, an economist in ECA’s Macroeconomics Division, shed light on key features of injustice in the global financial landscape.
He said The new times that IMF-SDR allocations (based on a country’s equity participation in the IMF) are highly unfair to Africa, allowing African countries to benefit from only a tiny fraction of the total amount.
“For example, out of $650 billion allocated in 2020, Africa only got about 5% ($21 billion),” he noted.
Then there is the conditionality of access to loans and support from multilateral institutions, such as a budget deficit not exceeding 5% of GDP. “This severely limits the ability of African countries to access international concessional finance,” he said.
“There are also unfair credit ratings of Africa by international credit rating agencies, which increases the perceived risk of investing in Africa. As a result, this imposes a restriction on access to capital markets, as the cost of borrowing is inflated by the high risk premium.