Bridging the Solidarity Gap: Bringing the Best from Financial Instruments
Author: Sciences Po student Thomas Singbeh summarizes the debate session of the fourth edition of the Paris Peace Forum
Date: 11 November 2021
Bridging the Solidarity Gap: Bringing the Best from Financial Instruments
The Paris Peace Forum held an enthralling and interactive panel session on 12 November 2021 on “Bridging the Solidarity Gap: Bringing the Best from Financial Instruments” as part of its annual engagement series that brings together global leaders and changemakers to discuss effective ways of tackling challenges to global peace, security and prosperity. In light of a general theme that focused on assessing strategies for an efficient post-Covid recovery, particularly in the developing world, this session sought to reflect on the role of global and regional financial institutions, stakeholders, instruments and policies in ensuring an effective and comprehensive pandemic response.
With special attention drawn to the IMF’s Special Drawing Rights initiative, climate financing, mitigation & adaptation (including the AU Great New Wall project), commitment of development partners or wealthier states, and the economic responses to the pandemic on the African continent, the panel highlighted the economic crisis in the region exacerbated by the pandemic, and trepidation and bottlenecks in areas of investment, borrowing and development financing. Importantly, the central question revolved around reviewing and measuring what has been and could be done to ensure financial stability and economic recovery in mid and post-Covid era. The panel included a range of prominent stakeholders: Macky Sall, President of the Republic of Senegal, Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), Dr. Akinwunmi Adesina, President of the African Development Bank (AfDB), and Ambassador Alain Le Roy, French diplomat and former United Nations (UN) Under-Secretary General for Peace Keeping Operations. Giorgio Leali of Politico moderated this session.
In her opening statement, Kristalina Georgieva acknowledged that the economies of low income countries are expected to shrink by half of the 2021 projected global growth rate of 5.9%. She termed this as ‘dangerous divergence’, and added that such fiscal inequality linked with disparity in vaccine access necessitates the enablement and optimization of the Special Drawing Rights (SDR) initiative. This cost-free lending facility was established in 1969 by the IMF to increase the liquidity capacity of states by supplementing their foreign currency reserves. Allocation of SDR is determined by the level of quotas contributed by states, and it does not add to their public debt burden. Evidently, during emergencies when states need these drawing rights more, poor countries with the most need have limited access to additional allocations because of their low contributions. With Africa eligible to receive a negligible 31 billion, far less from the 275 billion SDR rights allocated to emerging markets and developing countries, there’s still much to be desired. Hence, redistribution possibly remains a workable option on the table as Kristalina suggested, “How can we improve countries in dire need of help on the basis of those who got SDRs and who don’t need them in order to redistribute?” However, it’s worth noting that SDRs are not foreign aid, but reserve monetary assets that facilitate access or claims to hard currencies that enable emergency financing.
For his part, President Macky Sall agreed that redistribution is necessary and important, but stressed that “SDRs are just one of the tools.” Direct Aid and foreign investment are also very instrumental mechanisms. Sub-Saharan Africa prior to the pandemic has faced a multiplicity of economic challenges, from low foreign investment to high expenditure and reduction in international financial support. These constraints worsened by the health crisis pose a significant burden, making it difficult for states to adequately respond. With vaccination rates in Africa the lowest at 5%, he maintained that the SDR earmarked by the IMF for the continent is grossly insufficient. He argued that in order to ensure a truly committed approach to ending Covid-19, the rules and patterns of thought must be changed. The OECD must reform its usually exaggerated assessment of the risk premium of Africa. Wealthier states must commit to giving Africa the 100 billion requested through multilateral commitments and commutation of additional SDR rights.
President Sall also urged the United States, China, and other EU member states to follow the example of France in the redistribution of some of their SDRs. Underscoring this point further, Dr. Adesina pointed out that it’s “critical that the SDR hit ground where it really matters.” Commenting on the efforts made by the African Development Bank, he praised the institution’s prompt response with the establishment of the historic 10 billion dollar credit facility and 3 billion dollar social bond that provided immediate alleviation for African states. Additionally, rebranding the SDR as “supporting development revitalization”, Adesina cautioned that there’s a growing need to “optimize the global financial architecture”. If Africa is to respond adequately and recover quickly, it needs more investments and proportional funds that will not only strengthen its vaccine acquisition capacity, but also expand its recovery effort in other critically affected sectors such as agriculture, energy, education and even in job creation. He averred that multilateral development banks such as the AfDB, with tremendous experiences in these areas, can leverage these funds and finance public development banks that in turn enhance large scale financing of development projects in the region.
In addition, Ambassador Le Roy equally pointed out that strengthening and financing the private sector can help enormously in stimulating growth and recovery. “The private sector has a crucial role to play…. it is important to attract international funding to help small countries and entrepreneurs”, he noted. On Leali’s question of “how can we pretend that countries be generous to others when countries have to respond to the needs of their voters”, Ms. Georgieva clarified that the world functions as an interdependent body. It can only achieve success over the current pandemic and climate crisis when high income countries assume moral responsibility to help needy countries in the spirit of collectivism and in pursuance of the global good. “Nobody is safe until everybody is vaccinated”, she stressed. Also in response, President Sall outlined that mutual trust and interdependence include ensuring a win-win partnership between Africa and the Global North.
This interdependence, he observed, is instrumental in addressing other issues such as climate transition and the migration crisis. He emphasized that Africa’s development is also greatly beneficial for global progress. The continent is a victim of a climate crisis mostly caused by highly industrialized and rich countries at the cost of massive global pollution. If these higher polluters are negotiating climate deals at the expense of the industrialization and sustainability of low income countries (who emit less pollution), isn’t it morally justifiable in the framework of collective progress and global interest to help these affected states? Moreover, President Sall firmly indicated, that “we [Africa] are the least polluters and we are the ones affected by the worse effects of global warming, and we are the ones who cannot use our resources in the right way.”
Re-echoing this argument, Adesina further stressed that “Africa has a right to develop because it cannot be poor in an environmentally sustainable manner.” African-led initiatives such as the Great Green Wall and other large scale reforestation, food security, and renewable energy projects to improve the continent’s industrialization and development can be funded if rich countries fulfil their promises made, he argued. The world cannot expect to have sustainable progress in climate transition when Africa is left behind or disadvantaged in the energy transition process from fossil fuel to low carbon energy. This is something Ambassador Le Roy agreed is “extremely important” especially achieving progress on the Great Green Wall Initiative. However, with a large scale consensus on additional SDR lending rights and climate financing for Africa, there are still immense challenges to tackle, considering the growing hesitancy and continuous failure of richer countries to honor their financial commitments.
Contribution by Thomas Singbeh