2023-10-10 12:54:04
In Marrakech, Africa at the heart of IMF and World Bank reforms
The IMF and World Bank are returning to Africa following a 50-year hiatus to hold their annual meetings in Marrakech, Morocco’s ocher city still reeling from the September earthquake that left more than 3,000 dead.
The Moroccan government ignored the debate on the incompetence of local officials to host a major international conference, with 10,000 delegates, claiming that it would be a net gain for Morocco and for Africa. If the meeting can break the inertia of the campaign for reform of the international financial system, it’s a good bet. However, in view of current results, the task promises to be difficult.
Migration pressure
Morocco’s political, economic and geographical conditions should at least allow delegates to better understand the massive migratory pressures exerted on Africa: more than 90% of African migrants remain on the continent, and Morocco is a favored destination .
Not only because it is a starting point for crossing the Mediterranean, but also because salaries and job opportunities are better than in many neighboring Maghreb states. THE Morocco tests the market economic model of the IMF and the World Bank to its limits: the government brought inflation to less than 6% by mid-year, one of the lowest rates in the region, and reduced the unemployment rate to less than 16%.
However, Moroccans continue to protest once morest problems of employment and cost of living. The country has one of the most diversified economies in the region, but real growth rates have struggled to climb back to 3% this year, the level IMF economists estimate they will maintain at over the next three years.
Spearheads
As is the case in most economies on the continent, the lack of long-term capital at affordable rates is holding back expansion.
Investments in green projects remain below pre-pandemic levels
Until its recent break with the government of President Emmanuel Macron, Morocco was a favored investment destination for French companies. It is also one of the continent’s leaders in renewable energy, establishing solar farms to export electricity across the Mediterranean. European companies say they would favor Morocco for green projects, but investments remain below pre-pandemic levels.
Morocco, Kenya, South Africa and Egypt are presented as Africa’s spearheads in terms of renewable energies, but it should be remembered that the Netherlands, a temperate country, is always attracting more investments in solar and wind farms than all 55 African economies combined.
All of this is in line with the calls for reform of international finance launched by eminent African economists such as Carlos Lopes, special envoy of the AU, Akinwumi Adesina, president of the African Development Bank, and Mia Mottley, Prime Minister of Barbados.
Lopes, Adesina and Mottley are calling for a more productive use of the IMF’s reserve currency, Special Drawing Rights (SDR). This might include a special $100 billion allocation of SDRs to African economies to ease liquidity pressures as countries try to recover from the pandemic recession.
Suspend the surcharge
Other proposals in Africa’s reform agenda to be discussed at the Marrakech meetings include a complete overhaul of the quota system of IMF, that is to say the allocation of participations and voting rights which determine the weight of a country within the institution.
This should go hand in hand with a “critical examination of the current debt framework”, says Lopes, which does little to help countries adapt to climate change within the framework of sustainable development.
African economies paid an additional $56 billion in debt service
The IMF might also suspend its surcharge, which is supposed to discourage prolonged use of IMF funds but which, in practice, discriminates once morest poorer countries. Carlos Lopes adds that the IMF and the World Bank should streamline access to new climate funds, making it easier for African countries to access these funds and giving them more say in the allocation of funds.
Required capital
The other major financial reform that should be at the heart of discussions in Marrakech next week concerns the cost of borrowing for African economies. According to its chief economist, David McNair, the One campaign estimates that African countries pay a 500% premium on their borrowing in financial markets compared to the rates that might be obtained from the World Bank.
He estimates that this difference means that African economies have paid an additional $56 billion in debt service for loans taken out over the past five years. This is also part of the G20 reform agenda for the IMF and the World Bank. It seeks to triple the financial firepower of these institutions as well as regional development banks.
One way to do this quickly, raising up to $190 billion, would be to incorporate “callable capital” into development banks’ capital adequacy frameworks. The “callable capital” is a guarantee that commits the largest economies to intervene if development banks are in difficulty. This is where the question of political will arises.
It is a question of whether the richest economies take seriously the climate crisis and its devastating effects on the political economies of developing countries, or whether they want to continue to turn inward. What will happen in Marrakech should give a clearer idea of the desire to reform the financial behemoths of the planet.
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