Buy Out African Bondholders With IMF Tool, AfDB Chief Says
The resources of the International Monetary Fund should be used to buy holders of African bonds and prevent a crisis, as the global impetus to ease debt is suffocating, said the head of the continent’s largest multilateral lender.
Akinwumi Adesina, President of African Development Banksaid the Common Framework – created by the Group of 20 Leading Economies to attract private sector creditors in debt commitments with public creditors – is unlikely to be used again in its current state, as countries fear downgrades. of the rating, if applicable.
Still, many African countries desperately need debt relief as they struggle to make huge payments to investors in the coming years, Adesina said. To attract the private sector, he proposed repurchasing foreign bonds with part of the $ 650 billion reserves known as Special Drawing Rights, which the IMF plans to issue this year.
“These bullet payments, when they become due – and I don’t think Africa will be able to pay them – will really lead to a big, big debt crisis down,” Adesina told Bloomberg News Paris. “We need to use some of the SDRs as a way to buy part of this debt, but also conditionally ask the private sector to join the G20 general framework.”
Adezina’s proposal comes as leaders gather in Paris on Tuesday for a conference organized by France to finance African economies. Speaking after a separate meeting on Monday, French President Emmanuel Macron said he was in favor of full debt. cancellation for Sudan, which for France will include the deletion of about $ 5 billion.
Yet such a write-off would be a once a measure that will not be repeated for other African countries, said French Finance Minister Bruno Le Mer.
“It must remain exceptional as a major political gesture to greet the democratic transition in Sudan and to promote its development,” Le Merr told RFI radio on Tuesday.
So far, efforts by international lenders have focused on halting the cost of debt service, which does little to deal with the $ 700 billion pile in Africa or involves the private sector, which holds more than half of that debt.
The framework is available to 73 poor countries, but only Chad, Ethiopia and Zambia have so far requested it. Moody’s reduced Ethiopia’s credit rating on Monday also continued to review for further cuts, saying ongoing discussions on the country’s implementation of the Common Framework have increased the risk of private sector creditors incurring losses. Fitch Ratings already downgraded Ethiopia in February.
There are also doubts about whether allocating SDRs to the IMF alone can restore African countries’ finances, with Fitch saying in March that not enough to resolve imbalances.
“Africa’s debt is too high right now, like climbing a hill with a sandbag,” Adesina said. “This issue will not go away unless we find a mechanism to buy part of this debt from the private sector.”
“With the help of Alonso Soto.”
(Update with comments from French Finance Minister Le Mayr)