African countries are waiting with bated breath for the Joe Biden administration and other rich economies under the G-20 to consider a proposal to allocate at least $200 billion held in unused reserves at the International Monetary Fund to deal with the adverse impact of the coronavirus on their economies.
Africa is currently staring at a pandemic response funding gap of approximately $100 billion annually over the next three years, according to initial estimates by the United Nations Economic Commission for Africa (Uneca).
If approved, IMF funds made available under a major issuance of the IMF’s Special Drawing Rights (SDRs) – reserves from central banks of all IMF members – will provide additional resources to cash-strapped governments on the continent.
However, given that SDRs are allocated in proportion to each country’s shareholding (quota) in the IMF, what is required is for the largest shareholders of the bank to reallocate their unused reserves and increase capacity of the IMF to lend to low-income countries.
The proposal which is expected to be discussed during the spring meetings of the IMF/ World Bank in 2021 requires votes – at least 85 per cent – by IMF member states. Africa’s current shareholding of the IMF is about seven percent.
Of particular importance is a decision by the United States, the largest shareholder of the IMF with 16.51 percent of the votes. Under the Trump administration, the US made reservations delaying the decision.
Now, with the exit of President Donald Trump, there is optimism that the Biden administration may give a new lease on life to countries currently choking on debt that is complicating efforts to deal with the pandemic.
Limited response options
Analysts say while advanced economies have pulled out massive stimulus packages to deal with the effect of the pandemic, countries in the global south have limited options. For example, just last week, the US Congress approved a $900 billion stimulus package.
“It is a political decision; it has not been possible to get the super-majority under the current administration; the expectation is that hopefully under the new administration it could happen; but there is no guarantee it will happen,” Dr Donald Kaberuka, a member of the eminent African Union (AU) panel tasked with mobilising international support for Africa’s efforts to address the economic challenges African countries face as a result of the Covid-19 pandemic told The EastAfrican.
