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Africa: The Road Ahead for Africa – Fighting the Pandemic and Dealing With Debt

Annual Meeting of the African Development Bank, June 23, 2021

As prepared for delivery.

Excellencies, Ministers and dear friends,

I would like to thank President Adezina for inviting me to take part in the discussions today. The African Development Bank’s annual meetings are held at a critical time for Africa and the world. More than ever, we must all unite to end the pandemic and ensure recovery.

Africa now faces the world’s fastest growth rate of new COVID cases, with an exponential trajectory even more worrying than in the second wave in January. Based on current trends, this wave is likely to surpass previous peaks next week.

This is a human tragedy and an economic catastrophe. Countries on the continent – from South Africa to Uganda and Rwanda – have been forced to reintroduce restrictions, leading to uncertain recovery. In the face of new options, Africa is poorly protected due to a serious shortage of vaccines. So far, only 0.6 percent of Africa’s adult population has been fully vaccinated.

The warning signs are clear: a two-wheeled pandemic is leading to a two-wheeled recovery. Africa is already lagging behind in terms of growth prospects. This year, we expect the world economy to grow by 6 percent, but only half of that – 3.2 percent[1]-in Africa.

This must change in the name of Africa and for the benefit of the world. And this requires international cooperation on many fronts.

(1) First, strengthen international cooperation to end the pandemic.

IMF officials recently proposed a $ 50 billion plan that includes vaccinating at least 40 percent of the population in all countries by the end of this year and at least 60 percent by mid-2022.

The $ 50 billion cost has been reduced from the expected $ 9 trillion boost to global economic activity by 2025 from faster vaccine introduction and faster recovery. That would be the best public investment of our lives – and it would change the game for Africa.

Together with the World Bank, the WHO and the WTO, we are creating a “war room” – a working group to monitor and accelerate the implementation of this plan.

I am encouraged by the promises to support vaccines from international partners, including one billion doses announced at the G7 summit. I strongly support efforts to diversify vaccine production on the continent.

And I congratulate the African Development Bank and the African Union on providing vital support, including through rapid response mechanisms and the supply of vaccines. At the IMF, we are also working to implement our financial instruments to ensure that health systems have the capacity to save lives and ensure recovery.

(2) Second, help Africa cope with the growing burden of debt.

Debt levels, which had already risen before the pandemic, rose sharply. Public debt in sub-Saharan Africa jumped more than 6 percentage points to 58% of GDP in 2020, the highest level in almost two decades.

Last year, interest payments reached 20% of tax revenues for the region as a whole and exceeded one third of revenues in some countries. Similarly, public debt in North Africa increased by about 12 percentage points to an average of 88% of GDP last year.

To help maintain debt sustainability, the world has stepped up. The IMF has provided debt relief to its poorest members. And together with the World Bank, we have advocated for the G20 Debt Relief Initiative, as well as the Common Debt Resolution Framework, designed to provide greater debt relief for countries with greater debt vulnerability.

Thanks to the joint efforts of our members, we have reached two historic milestones: last year, Somalia received debt relief on the HIPC decision-making point and is now benefiting from our funding – and today Sudan is following the same path.

DSSI provided much-needed breathing space; and has been extended until the end of this year. Now is the time for the Common Framework to become fully operational. Three countries have requested debt treatment under the Common Framework – Chad, Ethiopia and Zambia. And I am encouraged that Chad has recently received financial guarantees from its bilateral G20 creditors. We now need quick commitments, under comparable conditions, from private creditors and other official bilateral creditors.

The successful implementation of the Common Framework in the first cases is crucial for other countries with unsustainable levels – they must also seek early action to resolve the debt. This is particularly important in light of the strong growth in the developed world, especially in the United States, and the likelihood of a gradual normalization of monetary policy, which could increase the cost of debt service.

(3) Third, the international community can help strengthen Africa’s reconstruction and resilience.

Clearly, the best way to deal with debt is for economies to grow. This is not an easy task during a pandemic, when governments face reduced revenues and increased spending on crisis measures. But this crisis is an opportunity for transformational reforms – to improve public services, strengthen governance and stimulate the mobilization of domestic revenues.

Consider how digitalisation can improve tax administration and revenue collection, as well as the quality of public spending. With radical transparency, Africa can benefit from new sources of finance, such as carbon offsets. And there is room to encourage more private investment in social and physical infrastructure.

As noted at the G7 summit, development finance institutions and multilateral partners intend to invest at least $ 80 billion in the private sector in Africa over the next five years. And the G20 with Africa remains a key framework for improving the business environment in Africa – and now is the time to expand and strengthen this initiative.

We also need to modernize international taxation. We see growing support for a global minimum corporate tax that can end the race and reduce tax evasion. We welcome international efforts to digital taxation. This would help ensure a fairer distribution of tax revenues – which will help meet Africa’s significant funding needs.

At the IMF, we are doing our part. We have rapidly increased our funding for the continent, including by providing 13 times our average annual lending to sub-Saharan Africa in one year. We have received support to increase access restrictions so that we can increase our capacity for zero lending rates.