ABIDJAN/Cote D’Ivoire: In a landmark visit to the African Development Bank Group’s headquarters in Abidjan, Cote D’Ivoire, the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, has thrown her full support behind the call to cease borrowing loans backed by Africa’s natural resources.
This historic meeting marked the first-ever visit by an IMF head to the Bank since its establishment in 1964.
Dr. Akinwumi Adesina, the President of the African Development Bank Group, warmly welcomed Georgieva, underscoring the detrimental effects of natural resource-backed loans. Adesina emphasized that these loans lacked transparency, came at a high cost, and posed significant challenges for debt resolution. He warned that if this borrowing trend persisted, it could spell disaster for the African continent.
In response, Georgieva pledged that the IMF’s senior management team would conduct a thorough assessment of the situation and would strongly advise countries against creating avenues for what she referred to as “predatory and enslaving loans.” Furthermore, she disclosed that this pressing issue would be on the agenda of the Global Sovereign Debt Roundtable, a body comprising bilateral creditors, private creditors, and borrowing countries, with co-chairmanship from the IMF, World Bank, and the presidency of the G20. Notably, the African Union recently became a permanent member of the G20 in September.
Georgieva’s visit to Africa precedes her attendance at the World Bank Group and IMF Annual meetings in Marrakech, Morocco, which marks the first time these meetings are being held on the continent in 50 years. She expressed optimism about Africa’s potential for dynamic growth on the global stage.
Adesina commended Georgieva and U.S. Secretary of Treasury Janet Yellen for their bold efforts during the height of the COVID-19 pandemic in 2021, which resulted in the allocation of $650 billion in Special Drawing Rights (SDRs) to support the global economy. However, Africa, with its population exceeding 1.2 billion, received only $33 billion of SDRs, a mere 5 percent of the total allocation and the smallest portion among world regions.
The African Development Bank continues to take the lead in discussions and model development aimed at channeling SDRs through multilateral development banks (MDBs), allowing for leveraging resources three to four times their original values. Adesina expressed gratitude to the IMF for collaborating with the Bank’s team on an initiative that could potentially redirect SDRs through MDBs, significantly increasing financing opportunities for Africa.
Adesina explained, “Together with the Inter-American Development Bank, we developed a model that meets the IMF’s reserve asset status. If you channel $5 billion through the Bank, we will use our leveraging power, and that could easily become $20 billion of new financing for Africa.” This initiative seeks to provide vital support to African countries grappling with post-pandemic debt, particularly low-income nations that fall under the African Development Fund, and which remain highly vulnerable to the impacts of climate change.
Georgieva, a vocal supporter of the Bank’s SDR initiative, affirmed that both institutions would continue to collaborate to explore innovative ways to deploy SDRs as hybrid capital, potentially expanding financial capacity for countries beyond their current tenures.
The African Development Bank Group’s SDR proposal has garnered support from African leaders and UN Secretary-General António Guterres.
In addition to endorsing the SDR initiative, Georgieva commended the African Development Bank Group and the African Union for their joint efforts to establish an African Financial Safety Mechanism. This mechanism aims to shield the continent from external shocks, such as the impact of the COVID-19 pandemic, and address a notable absence compared to other regions worldwide.
As Adesina underscored, “Africa is the only region in the world that does not have a safety net against shocks. Europe has it. Asia has it. America has it. The Middle East has it.” The African Union endorsed the proposal for this safety mechanism during its summit in February 2022, further emphasizing the commitment to bolstering Africa’s resilience against unforeseen challenges.
