The International Monetary Fund (IMF) and African Caucus have said that strengthening social protection is key to Africa’s development.
This is contained in a statement issued by the IMF Press Centre on Monday after the African Consultative Group Meeting held at the ongoing World Bank Group/IMF 2023 Spring Meetings in Washington DC.
The statement said Mr Olavo Correia, Cabo Verde’s Finance Minister and Chair of the African Caucus and Ms Kristalina Georgieva, Managing Director, IMF, made the assertion after the meeting.
“African countries are grappling with the impact of weakening global economic activity as the multiple shocks affecting the global economy persist.
“They include the impact of the war in Ukraine that has pushed up international food and fuel prices; tighter monetary and financial conditions combined with financial sector turbulence; and increasingly severe climate-related events.
“All of these follow the COVID-19 pandemic, which had already reduced fiscal and external buffers and caused scarring effects on many African countries.
The executives said macroeconomic imbalances had become more prominent as exchange rate depreciation, higher global interest rates and elevated sovereign spreads made financing more expensive or even unaffordable.
“Together with declining foreign aid budgets and lower investment flows, the region is confronted with a severe financing squeeze.
They said the public debt-to-Gross Domestic Product ratio was now on average for the region above 60 per cent, a level last seen in the early 2000s, raising concerns about debt sustainability in many countries.
The executives said in fact, nearly two-thirds of the region’s low-income countries were at high risk or already in debt distress in 2022.
“The group reiterated the need to address rising debt vulnerabilities and continue strengthening the international debt resolution architecture, including improving the Common Framework for debt treatments.
“The IMF continues to explore ways to make debt resolution more efficient. To this end, the IMF, together with the World Bank and the India G20 Presidency, have launched a Global Sovereign Debt Roundtable.
“The group also agreed that strengthening social protection is critical. Social safety nets can promote higher and more inclusive growth by improving education and health outcomes.
“Also by enhancing human capital labour or market productivity, and encouraging vulnerable households to invest in income-generating activities that also benefit local communities
The group also said leveraging digital infrastructure, such as mobile phone platforms, could help to increase efficiency and ensure social support was well targeted to the most vulnerable.
They said in such a shock-prone environment, building resilience, including to climate change, remained fundamental for the region.
“In the face of large financing gaps to meet climate adaptation needs, it is imperative to unlock concessional climate finance and attract private climate finance. Green bonds could provide a useful tool.
The group agreed that governments in the region, the international community, and the private sector should work cooperatively to respond to the region’s challenges.
They said increasing fiscal space in a growth-friendly way would help create space for much-needed social and infrastructure expenditure.
“Mobilising additional external financing to support the recovery remains critical.
The executives said deepening domestic financial markets, strengthening regional integration, and reducing trade and cross-border barriers, would help to build resilience in the face of external shocks.
“As well as leveraging the opportunities offered by the African Continental Free Trade Area.”
They also said improving the quality of institutions will be needed to close infrastructure gaps.
“The IMF remains steadfastly committed to the region and continues to work towards ensuring that its concessional lending toolkit for low-income countries is flexible, effective, and well-resourced.
“The Resilience and Sustainability Trust is now operational, providing longer-term affordable financing to address longer-term challenges, including climate change and pandemic preparedness.
They said Rwanda was one of the first beneficiaries, with several other countries in the pipeline.
The executive said the recently launched Food Shock Window was also providing emergency financing to countries facing urgent balance of payments needs related to the global food crisis.
“To continue to meet the needs of low-income countries in the region, there was an urgent need to replenish the Poverty Reduction and Growth Trust and put it on a sustainable footing.
“This is a key goal for the Annual Meetings.
“Finally, the IMF continues to provide significant capacity development to its African members to help preserve macroeconomic and financial stability and build economic resilience.”
The African Consultative Group comprises the Fund Governors of a subset of 12 African countries belonging to the African Caucus (African finance ministers and central bank governors) and Fund management.
It was formed in 2007 to enhance the IMF’s policy dialogue with the African Caucus.
