G-7 leaders should support change in the international financial system for Africa

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A water dealer fills a jerrycan in Abidjan, Ivory Coast, where residents face water shortages.

Sia Kambou/AFP/Getty Images

About the Author: Matthew Hassan Kukah is Bishop of the Catholic Diocese of Sokoto, Nigeria, and founder of the Kukah Centre, a think tank based in Abuja, Nigeria.

As Germany prepares to welcome G-7 leaders to Schloss Elmau for its annual summit, Africa continues to grapple with the Covid-19 crisis. While other parts of the world have seen a rapid recovery thanks to strong stimulus and support for vaccines, Africa still has the lowest vaccination rates in the world: only 17.7%.

In addition to a slow ongoing recovery from the pandemic, the war in Ukraine raises new concerns for people living in Africa. Rising food, fuel and fertilizer prices will add to the more than 40 million people who have fallen into poverty in recent years; a striking reversal of the encouraging trends of the previous two decades. The increasing severity and frequency of climate shocks in the region will exacerbate food shortages and their impacts on the continent’s poorest populations.

Africa needs $1.3 trillion a year to achieve the Sustainable Development Goals, global commitments to end poverty and hunger, address climate and infrastructure challenges that would bring transformational improvements to people from the continent. Africa lags far behind in meeting those global aspirations that the international community agreed upon in 2015. At the same time, its debts reached a staggering 70% of the economy in the first year of the pandemic.

Leadership and agency from African countries are essential to achieve the Sustainable Development Goals, but they only have a chance if there is a strong and rapid mobilization of external resources led also by the international community. At their next meeting, the G-7 can send a strong signal that, despite headwinds, they are committed to supporting Africa’s development in three key areas.

First, G-7 countries must prioritize the creation of an orderly and reliable process of sovereign debt restructuring.

The G-20 took a positive step in this direction with the creation of the Common Debt Framework. But the three countries that have attempted to use the G-20 process remain, more than a year later, mired in uncertain limbo.

The G-7 should express its unambiguous support for substantial changes in this process of debt reduction, in order to encourage the confidence of the large number of debtors in need of relief. It’s not too late to act before crises spiral out of control and cost much more to resolve. The process should ensure an immediate suspension of debt payments until a full settlement with creditors is achieved, prompt and effective decisions, comprehensive creditor participation, and access for any vulnerable country, regardless of its income level. Private creditors should know that they face consequences if they do not pay their fair share.

The intellectual leadership of the World Bank and the International Monetary Fund has been crucial in putting reforms on the table. But they should proactively facilitate action by compiling crucial information on which countries need how much aid and from whom. Only a collective analysis of their situation can provide the wake-up call the creditor community needs right now, and the G-7 can request that analysis.

Second, G-7 countries must maximize and accelerate the deployment of special drawing rights.

Last year the IMF created $650 billion in emergency currency – special drawing rights – for coronavirus response and recovery assistance. African countries have received $33 billion and are spending it on access to vaccines, poverty reduction and recovery measures. But much more is needed. Rich countries hold more than $400 billion that they could transfer to countries in need and have already pledged $60 billion to various IMF processes.

G-7 leaders should commit to more SDR transfers and more channels to carry them out. They can link their commitments to the assurance of beneficiaries that they will put in place participatory and transparent strategies to apply SDRs to sustainable and climate objectives. It is important that recycled SDRs do not create new debt and come with harmful conditions such as austerity reforms that harm human development or access to essential services. In particular, the African Development Bank and the International Fund for Agricultural Development, with their proven experience in agricultural development, can harness the power of SDRs to stop a catastrophic food crisis in the region.

Finally, the G-7 countries must create an international financial and trade architecture to prevent future debt crises.

To create stable foundations for a resilient recovery, G-7 leaders should work with their African counterparts to create a new international financial and trade architecture that will prevent future debt crises. This requires four main elements. First, responsible lending and borrowing policies – African countries should commit to putting in place debt contract disclosure and authorization frameworks that make debt more transparent. The G-7 includes key creditor jurisdictions and should commit to enacting reforms that prohibit the enforcement of claims unless they meet these standards. Second, in a world subject to more shocks, future debt should have creditors and debtors who share the exposure. Third, more sources of long-term concessional finance for development are needed. Finally, to maintain healthy debt levels, Africa needs to strengthen its trade engine. Its current paltry share of world trade, 3%, could expand to many more with the right rules. The appointment of an African leader, Ngozi Okonjo-Iweala, to head the World Trade Organization is a laudable opportunity to bring about change, but it will need the political support of all members. The political commitment of the G-7 would make a huge difference.

In the face of the unprecedented confluence of crises facing Africa, the G-7 should seize this opportunity to stand united behind policies that advance the integral human development of all people.

Guest comments like this are written by writers outside of Barron’s and MarketWatch newsroom. They reflect the views and opinions of the authors. Submit comment proposals and other comments to ideas@barrons.com.

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Don F. Davis