African Ministers of Finance, Planning and Economic Development have called for key reforms of the Bretton Woods Institutions at the 2023 Annual Meetings of the World Bank Group and the International Monetary Fund.
The call for reforms was made during a meeting of the Africa High-level Working Group on the Global Financial Architecture on the margins of the Annual Meetings in Marrakech, Morocco.
Coordinated by the Economic Commission for Africa (ECA), the High-level Working Group comprises African Ministers of Finance, Planning and Economic Development, the African Union, the African Development Bank, Afreximbank, and the World Bank, and includes the participation of IMF staff and Executive Directors. The Group serves as a forum to develop reform proposals for the global financial architecture and strengthen the African voice on the global stage.
Amidst the polycrisis, Ministers underscored the urgency of increasing access to liquidity and bolstering the global financial safety net. Specifically, they stressed the importance of securing adequate loan and subsidy resources for the Poverty Reduction and Growth Trust (PRGT) to ensure a minimum lending capacity of at least SDR 3 billion per year from 2025.
It was noted that additional funding could be secured through three key avenues. Firstly, by increasing funding pledges from donor countries to the PRGT. Secondly, by permanently terminating the PRGT Administrative Cost Reimbursement. Thirdly, by selling parts of the IMF’s gold reserves in the medium term.
Ministers welcomed the IMF Executive Board decision from March 2023 to temporarily raise annual access limits for the General Resource Account (GRA) to 200 percent of quota and the cumulative access limit to 600 percent of quota. They called for making these increased access limits permanent and for aligning the PRGT’s access limits with those of the GRA.
Ministers also highlighted a pressing need for further resource mobilization for the Resilience and Sustainability Trust (RST) to ensure that more countries can access IMF lending with extended maturities to build their long-term resilience.
It was acknowledged that IMF surcharges, which represent an additional interest payment due on large outstanding GRA loans, are placing an unnecessary burden on countries. Ministers called for suspending/waiving IMF surcharges for two to three years and for reviewing to the IMF’s surcharge policy.
Furthermore, Ministers called for reforming the Special Drawing Rights (SDR) system. Ministers urged enabling the rechanneling of SDRs to Multilateral Development Banks, including the African Development Bank. Additionally, the SDR allocation formula should be reformed to consider not only IMF quotas but also countries’ liquidity needs. There were also appeals to make SDR allocation decisions in a more rule-based, analytical manner to reduce the discretionary and political nature of the allocation process, including by clarifying the “Unexpected Major Developments” provision.
Ministers also discussed the need to reform the G20 Common Framework to make it more effective, time-bound, and transparent. Proposals included a suspension of debt service for all countries entering Common Framework restructurings and an expansion of eligibility for the Framework to middle-income countries. Additionally, there were calls for making bolder use of the IMF Lending into Arrears policies to reduce the leverage of holdout creditors. Furthermore, a strong call was made for the inclusion of climate-resilient debt clauses in all new sovereign debt issuances, which would allow countries to pause debt service payments in the event of climate-related disasters.
Finally, Ministers issued a resounding call to strengthen Africa’s voice and representation on the global stage. While welcoming a general IMF quota increase, they emphasized the further need to reform the IMF’s quota formula to increase Africa’s quota share.
Ministers also expressed support for the establishment of an additional chair to represent African countries at the IMF Executive Board to amplify the region’s voice and representation. There was a consensus that given the enormous challenges facing Africa, the additional chair is needed for the IMF’s timely and effective response.
Ministers also discussed reform proposals for the World Bank building on the ongoing World Bank evolution process. They asked that a better funded and more effective World Bank dedicates adequate attention to the specific needs and priorities of African countries, including regional integration, infrastructure development, and structural transformation.
Additionally, Ministers underscored the importance of scaling up both concessional and non-concessional financing from the World Bank to enable the institution to effectively fulfill its expanded vision and mission, while safeguarding the principle of additionality. To provide more financing through the International Development Association (IDA), Ministers advocated for increased donor pledges to the IDA20 Crisis Response Window Plus and emphasized the need for an ambitious replenishment for IDA 21, aligning with the objective to triple IDA by 2030. For the International Bank for Reconstruction and Development (IBRD), there were calls to continue with the implementation of balance sheet optimization measures while also seeking a capital increase.
Ministers called for leveraging more effectively existing resources and transforming the World Bank’s approach to project delivery. This includes strengthening the crisis response including through rapid and greater access to the Crisis Response Window, enhanced contingent financing, collaboration with the insurance industry, and the creation of new market instruments. Additionally, it was stressed that conducting thorough cost-benefit analyses for projects with public good elements, especially those related to climate, is crucial.
Furthermore, Ministers highlighted the importance of a One World Bank approach to cut transaction costs and duplication. The need for effective collaboration with other Multilateral Development Banks, such as the African Development Bank, was also underscored.
There was a strong emphasis on the need for the World Bank to expand the use of guarantees to reduce borrowing costs for developing countries. One effective measure could be the development of joint guarantee products supported by all World Bank Group institutions. To crowd in the private sector “de-risking” techniques and “blended finance” vehicles could be used.
Lastly, Ministers emphasized that vulnerabilities beyond a country’s income status should be considered to determine eligibility for concessional financing.
BY STAFF REPORTER
THE ETHIOPIAN HERALD WEDNESDAY 18 OCTOBER 2023
