African governments need unprecedented amounts of money to deal with the coronavirus pandemic and its economic fallout. Most policymakers, scholars and economic justice activists agree on the need for greater debt relief and monetized public spending. Both policies aim to increase the resources governments have at their disposal to address the conjoined public health and economic crises. The United Nations Economic Commission for Africa (UNECA) estimates a best-case scenario of 300,000 deaths and a 1.8 percent increase in GDP, and a worst-case of over 3 million deaths and a 3.6 percent drop in GDP—plunging an additional 37 million Africans into poverty. We need swift, bold and decisive action on debt relief and monetary creation in Africa in order to face the coronavirus crisis. African finance ministers are calling for US$100 billion for health spending and debt relief and $100 billion for economic recovery—together less than 8% of Africa’s 2019 GDP. This is likely an underestimate; much more money will be necessary.
Africa is expected to be among the worst hit regions given the weakness of its public health systems. One-third of Africa’s population lacks access to running water and over three hundred million Africans live in crowded slums. Most African workers are in the informal sector, with no safety net, and few can work from home. After decades of neoliberal austerity and privatization, Africa’s public health systems are ill-prepared to deal with the surge of COVID-19 cases. There are shortages of protective equipment like masks and gloves, and even basics like running water and soap. The World Health Organization estimates that there are about 5,000 beds in intensive care units in 43 African countries, and fewer than 2,000 working ventilators, compared to more than 170,000 in the United States.
African governments are among the most fiscally constrained, with the lowest tax collection rates and highest borrowing costs in the world. Of the US$8 trillion pledged by governments for recovery, G-20 nations account for 90 percent. South Africa is the only African member of the G-20, and its government announced a R50 billion package worth 10 percent of GDP. Excluding South Africa, “the average fiscal-support package announced by African governments so far amounts to a meager 0.8% of GDP, one-tenth the level” of G-20 countries. African governments can expect much lower revenue this year due to shutdown businesses not paying taxes, reduced export earnings as the global economy contracts and capital flight as foreign investors flee—which will spark devaluation and raise the value of foreign debt. Many governments already had high levels of debt before the crisis, with repayments consuming over 20 percent of fiscal revenue in several countries. In 2017, total debt for 44 governments in sub-Saharan Africa was 160 billion, with 90 billion denominated in foreign currencies. Multilateral lenders like the IMF and World Bank hold half of that external debt, the Chinese government is likely the region’s second largest foreign lender, and the rest is held by Western governments and private bondholders.
While the IMF and several governments have pledged to suspend debt payments in 2020 for poor countries, the amounts proposed, so far, are insufficient. The G-20, led by France, announced $20 billion in suspended debt payments for 76 poor countries—including 40 in Africa—that are eligible for concessional lending through the World Bank. This still leaves another $12 billion in payments due. It also excludes highly indebted, middle-income countries like Angola. The IMF promised to cancel debt service payments worth up to $500 million to 25 of its poorest borrowers, many of them in Africa.
In addition to joining the growing consensus for a moratorium on debt service for 2020 and 2021, international NGOs like Eurodad, Jubilee Debt Campaign and the Transnational Institute, are also advocating for significant reductions of debt principal. UNCTAD, for example, is promoting a “Marshall Plan for Health Recovery” for low and middle-income countries of $2.5 trillion—roughly equivalent to the amount OECD nations have pledged in annual development aid. It would include $1 trillion for debt relief—50 times what the G-20 recently promised—and $500 billion in grants for health spending. In addition, they highlight the need for capital controls to stem capital flight.
There has also been a remarkable consensus forming on the need for the IMF to create (international reserve) money to help African governments finance recovery. Rich countries have decided to monetize fiscal spending, with governments running massive deficits and central banks agreeing to buy government bonds in unlimited amounts. The conventional wisdom on the monetization of government spending has shifted tremendously in the last few weeks. Governments in the global south, however, cannot meet all their needs through domestic money creation since they need “hard currency” (dollars, euros, yen, etc.) to pay for urgent imports of medical equipment and supplies. The IMF created its own quasi-money, the “Special Drawing Right” in the late 1970s after the breakdown of the Bretton Woods regime of fixed exchange rates. Global south governments could convert SDRs to dollars and euros to buy the essential goods they cannot produce domestically.
While most economists are debating the appropriate amount of SDR creation, the Trump administration opposes it altogether. Treasury Secretary Steve Mnuchin argues it is too blunt an instrument. The IMF’s allocation formula—based on the size of national economies—would give 70 percent of new SDRs to rich countries that do not need it. Indeed, the last time the G-20 agreed to SDR creation, adding 183 billion SDRs (US$287 billion) in response to the global financial crisis in August 2009, all of Africa received 15 billion SDRs (and South America about 16 billion). Instead of creating SDRs, the Trump administration prefers donor governments contribute to IMF’s traditional lending programs with their usual neoliberal conditions. Nonetheless, even Larry Summers (notorious for once arguing that Africa was “under polluted” while chief economist at the World Bank) is calling for 500 million in new SDRs, and blasted the obvious double standard of the Trump administration’s decision as: “It’s whatever it takes for us and crumbs off the table for the world.”
In response to the allocation problem, UNCTAD proposes 783 million in new SDRs ($1 trillion) but paired with a temporary reallocation of SDRs where rich countries donate their SDRs. Progressive economists like Andres Arauz contend, however, that “We have no time to make the allocation shares more just, but we have no restriction as to the amounts issued.” He therefore ambitiously proposes the creation of 4 trillion SDRs ($5 trillion). Even with the IMF’s skewed formula, this would provide approximately 350 trillion SDRs ($475 billion) for Africa. The US Federal Reserve could also simply provide dollars to central banks in Africa via swap lines—either directly or indirectly via the IMF—but such international cooperation is only extended to a handful of other “major” countries whose financial collapse would hurt the US economy.
The financial resources available to African governments is only half the equation, however. Equally important is how the money is spent. The Ramaphosa government’s relief package, for example, is less impressive than the headline number. Much of it is not additional spending—merely repurposing public funds—while only half is dedicated to health spending and income support for the country’s poor majority. The other half is devoted to loan guarantees and tax deferments.
Progressive activists and intellectuals across the continent and its diaspora are demanding that African governments spend the money necessary to ensure the response is proportionate to the scale of the disaster. These funds must be used to protect the health and incomes of the poorest and most vulnerable. While taxing the rich and domestic monetary creation are also essential elements of financing the response to the pandemic, we must also stop the drain of foreign debt service and increase African governments’ access to hard currency. If governments and banks in North America, Western Europe and China choose to squeeze African governments for debt payments and hinder their ability to finance a robust recovery, then millions of Africans will be forced to pay for this crisis through more illness, unemployment, hunger and unpaid care work, and for many, ultimately with their lives.