analysis. How to rethink financing for sustainable and inclusive growth during the Covid-19 pandemic? Suggestions from the economist circle.
EAccording to data from the World Bank, by 2020, global GDP will fall by 4.4%. The African economy is not immune to this crisis. The Covid crisis caused the flow of funds to Africa to collapse.Foreign direct investment in Africa has fallen by 10.3% to settle Will reach 45.4 billion U.S. dollars by 2019According to data from the United Nations Conference on Trade and Development (UNCTAD), by 2020, this number has fallen by nearly 40%, and the flow of migrant remittances has fallen by 25% (European Investment Bank). Tax burden in most countries, About 17.2%Despite some reforms in this area, it is still very low. Although Kristalina Georgieva, managing director of the International Monetary Fund, estimates that Africa’s massive financing needs between 2020 and 2023 are about US$1.2 trillion, the burden of foreign debt Most of it has increased. African countries (such as Zambia) accounted for 80% of GDP in 2019 (African Development Bank), and according to estimates, exceed 100% of GDP in 2020. However, rather than saying that the amount of debt is irrelevant, it is rather that African countries cannot make productive investments in the market at low cost and cultivate sufficient growth to repay their debts. But Africa is showing innovation. It is the goal of extraordinary financial transformation and even a leader in a series of financial technology innovations. Therefore, the next three years are decisive and are opportunities for Africa to establish a new financing structure (source of growth).
Participant in the Dakar Consensus, economists were partners in the 1920sE The African International Economic Forum, jointly organized by the African Union Commission and the OECD Development Center, is chaired by Senegalese President McKee Sar. The forum was held on February 22, 2021. The theme was “Investing in the sustainable recovery of Africa”. It was an opportunity to participate in the discussion, but also made specific recommendations, especially around “Rethinking sustainable development and inclusive growth.” Fundraising”. At the time of the Covid-19 pandemic”. These are intended to transform the Dakar Consensus’ Consensus Statement on December 2, 2019 into a decision. We recommend that you introduce these to you through their merits.
Debt: Dakar consensus, a turning point for Africa?
The sixth recommendation of the Dakar Consensus mentions that the ratings of African countries must be reconsidered. The development of Africa is no longer restricted by the strict evaluation of the three major international institutions. However, African countries must ensure that the loans provided to them finance future productive investments in various sectors (technology, industry, agriculture, health, education, environment).
There are three points to improve the rating of African countries:
1) International organizations, members of the Group of 20 (G20) and Paris Club (Paris Club) must exert their influence and promise to remind rating agencies that they must objectively rate the debt issued by African countries.
2) A specific tool must be used to improve the rating: credit enhancement in Africa (single loan). This financial technology relies on specialized financial institutions that provide guarantees to agents who issue bonds in the financial market to improve their ratings. This increase in credit brings costs to financial institutions, which will be borne by international organizations and countries that wish to dedicate part of their official development assistance to international organizations and countries. In this way, they will provide partial loan guarantees for African countries to reduce the country’s financial burden and restore confidence in private investors.
3) Two structures must be established to make African debt ratings more objective and global financial governance fairer (points 6 and 7 of the Dakar Consensus). The first is an international rating agency in Africa, consisting of all major African financial institutions (African Development Bank, African Solidarity Fund and Regional Development Bank), major international institutions (International Monetary Fund, Global Bank), and they will also provide Its data takes into account the potential of the continent and the most important rating agencies that will provide their expertise (Standard & Poor’s, Moody’s and Fitch Ratings). The second type is a single-line pan-African structure or credit enhancement company. It can be composed of the World Bank and the International Monetary Fund, as well as the G20 and Paris Club countries, which provide clear guarantees for some of the obligations of African countries. This structure will benefit from the best possible rating (AAA), which will increase the rating of African country bonds. The African International Rating Agency ensures the supervision of investments related to these guarantees.
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African perspective: African Development Bank highlights challenges for 2021
Africa must find a means of investment. This is why it is absolutely necessary to extend the moratorium on some African countries that the G20 countries and the Paris Club decided on April 15, 2020, until Africa returns to the level of growth calculated in consideration of the due decline. According to the African Development Bank ( African Development Bank) forecast for 2020 to respond to the Covid crisis and the growth that countries will achieve without the Covid crisis. Suspicious debts (constrained by a regime that violates the public interest with the forgiveness of creditors, Sack, 1929) or illegal debts (violating the general interests of the population) must also be cancelled.