The International Monetary Fund (IMF) has warned that ‘policy-induced distortions that stymie private investment’ must be eliminated and public finance management systems must be improved. According to the Fund, sub-Saharan Africa will need hundreds of billions of dollars and reforms that bring change for a resilient recovery from the damage wrought by the coronavirus pandemic.
IMF MD, Kristalina Georgieva
Support from the international community that includes stepped-up debt relief, financing and capacity development will be needed, MD Kristalina Georgieva and Abebe Aemro Selassie, the director of the lender’s Africa department, said on Tuesday in a blog post. The IMF has approved more than $15bn in financial assistance and debt-service relief to Sub-Saharan African countries to offset the effects of the pandemic and “certainly will be doing more in the years ahead”, they said. The regional economy will probably contract 3.2% in 2020, before rebounding to grow 3.4% in 2021, the IMF said in its World Economic Outlook published in June.
In addition to assistance from multilateral lenders, many African nations have taken advantage of the Group of 20 leading economies’ debt-service suspension initiative to free up funds to finance the fight against the pandemic. While countries including SA and Ivory Coast announced fiscal-support packages, very little of that was new spending, and as a ratio of GDP it lagged advanced economies.
Policymakers must ensure that the fiscal support deployed to fight the virus also works towards building a smarter, greener and more equitable future, and implement reforms that encourage investment from the private sector, Georgieva and Selassie said. “Important as external support will be, it will be neither effective nor sufficient unless policy-induced distortions that stymie private investment are eliminated or public finance management systems improve,” they said.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry
WHEN the International Monetary Fund (IMF) jettisoned a 68-year-old bylaw that prohibited the appointment of a candidate aged 65 or above as its Managing Director, it paved the way for 66-year-old Bulgarian environmental economist, Kristalina Georgieva, to head the multilateral lender. That singular accommodative action was indicative of Georgieva’s sterling qualities.
Kristalina Georgieva
In taking that decision, the executive board of the Fund said that the amendment brings the Managing Director’s terms of appointment in line with those of members of the IMF executive board, which the managing director chairs, and those of the president of the World Bank, which is not constrained by an age limit. Georgieva’s ascendancy to the position of Managing Director of IMF is unique in many respects. First, she succeeded Christine Lagarde who was the first woman to head the global lender, a clear sign that the Brettonwoods institution is walking the talk on mainstreaming gender rights. Second, the position of the IMF managing director is traditionally reserved for Europeans, but there has been an overwhelming presence of the French on that list with five out of the 11 past Managing Directors being French.
The choice of a Bulgarian was a clear break from the past where countries from Western Europe had dominated the position in the past seven decades. Georgieva, who served on the European Commission and had been the Chief Executive Officer of the World Bank since January 2017 was the clear choice of the European Union. She defeated former Dutch Finance Minister, Jeroen Dijsselbloem to clinch the position. Her time at both the European Commission and the World Bank Group marketed her as an insider in both organizations with in-depth knowledge of development challenges of emerging market countries, given the bumpy relationship the Fund has had with that group of countries.
Moreso, observers see her appointment as coming at the right time when environmental issues are on the front burner of economic policy making. Georgieva is bringing her vast knowledge of environmental policies into the development mix, having joined the World Bank as an environmental economist in 1993.
Many in Washington D.C. also see her appointment as a welcome development, especially to assuage the yearnings of Brettonwoods’ insiders who have been angling for one of their own to head either of the institutions.
Georgieva is coming at a seeming less turbulent period in the global economy, unlike her predecessor who guided the IMF through the European sovereign debt crisis, which began about a month after she took office. Nonetheless, many think the storm may not be far off, especially with the off and on trade war rhetoric from the world’s two biggest economies, the recurrent Argentina debt crisis, and the rising nationalism that threatens the gains of multilateralism of the last seven decades. As a champion of multilateralism, Georgieva is expected to maintain Lagarde’s recent focus on tackling climate change, boosting female labour participation and reducing inequality. A longtime World Bank official who served as EU commissioner for aid and crisis response, Georgieva has more expertise in development than Lagarde but less familiarity with financial trouble in advanced economies.
She is taking office at a time Argentina’s debt crisis is hitting the roof and it is likely that the IMF will renegotiate or replace the existing controversial programme. She will also have to contend with the slowdown of the global economy which will put pressure on the IMF as the world’s lender of last resort to funnel support to more countries seeking support. Revered as one of the most influential women in global development, Georgieva’s achievements are eloquent and reassuring. From February to April 2019, she served as Interim President of the World Bank Group, following Jim Yong Kim’s resignation. Now, she sits atop the management of that development institution, its service to humanity. In 2010, Georgieva was named “European of the Year” and “Commissioner of the Year” by European Voice for her leadership of EU’s humanitarian response to crises.
She holds a master’s degree in Political Economy and Sociology and a PhD in Economic Science from the University of National and World Economy in Sofia. Between 1977 and 1991, she was a professor at the same University.
Georgieva has more than 100 publications and is the author of the first microeconomics and co-author of the first macroeconomics textbooks in Bulgaria. She has lectured at universities around the world, including Harvard University, Moscow State University, the Massachusetts Institute of Technology, the London School of Economics, Tsinghua University, the University of the South Pacific and the Australian National University. In addition to her native Bulgarian, she is fluent in English and Russian and has a strong working knowledge of French.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
Like the scriptures, the International Monetary Fund (IMF) is probably resigned to the existential fact that “the poor will always be with us”. It characterizes 59 of its 189 sovereign members as low-income countries which currently post GNI per capita of about $1,025 or less against high- income economies with GNI per head of $12,376 or more. Under current conditions in the global economy, the Fund reckons that it will take 90 years to halve the gap between the two.
Central Bank of Kenya (CBK) Governor, Patrick Njuroge
That may well be eternity for citinizens of developing countries, most of who live in sub-Saharan Africa. Of these countries, 43 percent are in distress and the Fund is looking for new ideas to help bridge the gulf between the world’s haves and have-nots. Regrettably, the task, the IMF says, is being made harder by the day by a cocktail of challenges including recurrent commodity price shocks, soaring borrowing costs and difficulty in adapting to recent developments in technology and Fintech. Other headwinds border on the fallouts from global trade tensions fomented by the world’s two largest economies, conflicts and natural disasters.
Panelists at the talk on Lending to Low-Income Countries who are also representatives and mouth pieces of policymakers in LICs, acknowledge that the Fund’s new architecture for lending has been deployed in many states but are unanimous that many of the programs need to be tweaked to make them effective for the diverse and peculiar needs of the Fund’s client-states.
Central Bank of Kenya (CBK) Governor, Patrick Njuroge, is particularly worried about the problem of access to the Fund’s programs. He berates the IMF for the impracticality of its terms, citing the requirement that LICs on Poverty Reduction and Growth Facilities achieve debt sustainability in three years as “stringent” when richer countries are cut considerably more slack. He is supported by Antoinette Sayeh, former Director of Africa Department of the IMF and cabinet member in Liberian President Ellen Johnson Sirleaf’s government. She notes that the Fund’s debt sustainability analyses for LICs need improvement to reflect the peculiar challenges of their clients. Her stint at the institution vis-a-vis her time in the government of Liberia stands her in good stead to objectively criticize the Fund’s processes and policies.
For Alamine Ousmane Mey, Cameroon’s Minister of Economic Planning and Regional Development, much of the problem stems from the inability or failure of the Fund to carry out realistic assessments of the scope of their interventions, the resources available to LICs and the expected outcome of programs. Often, he says, the lender is too optimistic in its assessments such that failure becomes inevitable.
Bank of Zambia Governor Denny Kalyalya agrees with his co-panelists’ exception to the conditionalities that sometimes make programs stilted and bereft of clients’ buy-in or “ownership”. Fortunately, the IMF knows that it needs to up its game to become more relevant to the neediest of its client-states. It expects LICs to grow at an average rate of 5.5 percent in the medium term just to remain as they are. It is mulling new processes and policies that will increase the maximum they can borrow under the already liberal, interest-free Poverty Reduction and Growth Trust by a third of the old value. It is also increasing the flexibility of the terms of engagement with fragile states all in a bid to close the yawning gap between the rich, developed countries and poor ones. The most immediate adjustment it is planning to make is to encourage countries to immerse themselves in the programs and really ensure ownership.
That out of the way, the IMF wants LICs to overhaul their processes and the quality of their budgets and Cameroon’s Mey agrees. He enjoins poor countries to do their bit by working on internal administration of their economies to link up government with the productive tax-paying private sector. The Small and medium-scale enterprises which constitute the bulk of players in their economies must be brought into the formal sector for accountability. More important, these diverse economic players must also be made to see taxation not as burden but a positive tool to provide the enabling environment for a thriving economy and their own good, especially.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
