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African states have big plans for IMF rescue package

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AFRICAN countries which are set to benefit from a multi-billion-dollar rescue package anchored on International Monetary Fund (IMF) assets have committed to deploying the financial resources in a transparent manner as the continent takes a knock from Covid-19.

BERNARD MPOFU
France and Germany are lobbying G20 countries, a grouping of advanced economies, to surrender part of their IMF Special Drawing Rights (SDR) to help vulnerable countries in the region absorb economic shocks arising from the respiratory disease. Covid-19 has claimed the lives of over million lives across the globe and has slowed down economic activity. 

“We will leverage on the international financial system to create the much-needed fiscal space for African economies. We call for the swift decision on and implementation of an unprecedented general allocation of IMF’s Special Drawing Rights (SDRs) that is expected to amount to US$650 billion, of which about US$33 billion to increase reserve assets of African countries, and urge countries to utilise these new resources transparently and effectively,” a declaration signed by African countries reads. 

“We are determined to significantly magnify its impact for Africa, by exploring on-lending SDRs on a voluntary basis through the IMF’s Poverty Reduction and Growth Trust (PRGT), and by exploring a range of additional options with the IMF, World Bank and other MDBs (multilateral  development  banks) to enable possible on-lending of SDRs to support IMF members’ green, resilient and inclusive recovery, as we emerge from the pandemic, in line with Sustainable Development Goals,” said the IMF.

“We will accelerate reforms, with the support of international financial institutions, international organisations and development agencies, to develop a more stable, transparent and reliable business environment and investment climate.

“We encourage further private sector focus in concessional windows at the World Bank Group and at the AfDB, by considering ways to increase the impact of the Private Sector Window (PSW) under the IDA-20 replenishment, and of the AfDB’s Private Sector Credit Enhancement Facility (PSF) under the ADF-16 replenishment.”

On the sidelines of the next IMF and World Bank Group annual meetings in October 2021, the countries further committed, there will be an opportunity to take stock of efforts to ensure the effective implementation of these measures and to refine the proposed initiatives.

Zimbabwe, reeling under a protracted liquidity crunch and in dire straits, is expected to get 800 million SDR – about US$1.1 billion – from the IMF’s new US$650 billion economic rescue package for the global economy ravaged by the Covid-19 pandemic.

The bailout – the biggest SDR package in history – will boost liquidity for struggling countries, without adding to debt burdens. Zimbabwe badly needs that.

IMF managing director Kristalina Georgieva is set to table the fresh US$650 billion proposal before the fund’s executive board meeting in June for final approval. Member states have already approved the package, making the board meeting a mere formality. 

A detailed plan will then be developed before disbursements, which could start in August.
An IMF source in Harare told The NewsHawks  that Zimbabwe, which has not received normal funding from the lender since 1999, will get a lifeline from this huge windfall.

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. So far, SDR 204.2 billion (equivalent to about US$293 billion) has been allocated to members, including SDR 182.6 billion (US$250 billion) allocated in 2009 in the wake of the global financial crisis. 

The value of the SDR is based on a basket of five currencies — the US dollar, the euro, the Chinese renminbi, the Japanese yen and the British pound sterling.

US$1.1 billion will be a huge bonanza for Zimbabwe which has been struggling for years to pay off arrears to international financial institutions (IFIs)– the IMF, World Bank and African Development Bank (AfDB) – to secure US$2 billion in new funding. 

The doomed Lima Plan was about that, but Zimbabwe only managed to pay the IMF US$107.9 million in arrears, although IFIs demand that their arrears be paid simultaneously – the pari passu rule. 

Ditched by IFIs for defaulting on arrears since 1999, Zimbabwe still owes US$7.66 billion to various creditors, including the World Bank, European Investment Bank, the Paris Club and AfDB. 

The US$1.1 billion bailout will thus come in handy for the broke Zimbabwean government. 

However, there are concerns governance and accountability could take a back seat during the Covid-19 crisis, especially in corrupt states like Zimbabwe which have been rocked by serious Covid-19-related corruption scandals. Guidelines on the utilisation of SDRs are being developed.

The global lender-of-last-resort still wants to release substantial funding to help Africa cope with the coronavirus pandemic. Unemployment, poverty and national debt have risen dramatically in many countries on the continent, including Zimbabwe.

This will not be the first time Zimbabwe is getting a windfall from the IMF. In 2009, it got US$500 million in SDR, which was part of a US$250 billion bailout, in the aftermath of the global financial crisis which triggered an economic meltdown in vast swathes of the world economy.

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