African Ministers of Finance, Planning and Economic Development have called for reforms aimed at strengthening the International Monetary Fund’s operation model, lending instruments and governance structure to deal more effectively with global exogenous shocks such as the COVID-19 pandemic, the war in Ukraine and the unfolding climate crisis.
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 2023 Spring Meetings of the World Bank Group (WBG) and the International Monetary Fund (IMF) held in Washington, DC.
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.
Ms. Hanan Morsy, ECA’s Deputy Executive Secretary and Chief Economist, emphasized the need to champion “concrete, actionable asks that can be swiftly implemented while also calling out structural imbalances that require a longer-term reform approach.”
Ensuring the availability of lending
Ministers expressed deep concern over the shortfall in resources for the IMF’s Poverty Reduction and Growth Trust (PRGT), which provides concessional lending to low-income countries. They called for immediate action to increase funding pledges to the PRGT to ensure its long-term sustainability. Additionally, there were calls to terminate the PRGT Administrative Cost Reimbursement and to sell parts of the IMF’s gold reserves in the medium term to increase the availability of funding.
Ministers emphasized the need to revisit access limits as resources become available. Specifically, they requested an increase in the PRGT’s annual access limit to 200% of quota and in the cumulative access limit to 600% of quota – in line with the recently agreed-on increases for the General Resources Account (GRA) access limits.
The Group also noted the heavy utilization of the IMF’s emergency lending facilities – the Rapid Credit Facility (RCF) and the Rapid Financing Instrument (RFI) – by countries responding to the COVID-19 pandemic. The temporary doubling of annual access limits for these facilities, from April 2020 to December 2021, unlocked important liquidity. Against the backdrop of the ongoing polycrisis, Ministers urged the IMF to raise the annual access limits of the RCF and RFI back from 50% to 100% of quota while maintaining the higher cumulative access limits at 150% of quota until at least the end of 2024.
Improving the terms of lending
Given countries’ substantial long-term investment needs for achieving the SDGs and combating climate change, loans at low interest and with long maturities are necessary. The Group acknowledged the importance of the IMF’s Resilience and Sustainability Trust as a means of providing longer-term financing. However, interest rate hikes around the world have led to an increase in the SDR interest rate, resulting in higher interest charges on IMF loans accessed through the RST. The Group called for the capping of the SDR interest rate under the RST, particularly for low-income countries, and the mobilization of additional resources for the RST.
The Group also voiced concerns over IMF surcharges, which are additional interest payments due on large outstanding GRA loans. A number of African countries are incurring surcharges while facing challenging economic conditions amid global shocks. Against this backdrop, Ministers called for suspending or waiving of surcharges for two to three years.
Addressing systemic imbalances
Ministers highlighted the importance of addressing quota imbalances. They noted that the current formula for IMF quotas results in an under-allocation of quotas to low- and middle-income countries, reducing their representation in decision-making and weakening the effectiveness of the SDR system. For example, despite having a population of over 1.4 billion, Africa's quota is smaller than that of Germany, which has a population of only 83 million. Ministers called for a reform of the quota formula, including the reduction of the weight given to the formula’s current categories of “openness” and “reserves” and the inclusion of a new category that captures “exposure” or “vulnerability.” The 2023 IMF quota review offers an opportunity to address these imbalances.
The Ministers also urged the IMF to expand its advocacy and policy work on global imbalances, namely by advocating for policy adjustments in countries with a current account surplus and by strengthening the Capital Flow Management/Macroprudential Measures (CFM/MPM) guidance for deficit countries. To curb unproductive cross-border trading, further analysis would be useful on the potential application of a market access charge, Tobin tax, or other tax remedies.
Call to action
Ministers emphasized the importance for 2023 to be a year of action, stressing that many good ideas exist but need to be implemented. They highlighted upcoming events, including the Summit for a New Global Financial Pact in June, the Climate Action Summit, the Climate Ambition Summit, and the SDG Summit in September, as crucial opportunities to collectively push for change and build a sustainable and prosperous future for Africa and the world.
Courtesy: Communications Section of the Economic Commission for Africa