Risks facing Africa requires urgent IMF special fund – Afreximbank report

ads

The risks facing Africa and the rest of the world make the issuance of additional International Monetary Fund (IMF)’s Special Drawing Rights (SDRs) more urgent, according to a report released on Tuesday by Afreximbank.

Special drawing rights are supplementary foreign exchange reserve assets defined and maintained by the Washington based IMF.

SDRs are the IMF’s reserve asset, and are exchangeable for dollars, euros, sterling, yen and Chinese yuan or renminbi. The IMF has so far allocated SDR 204.2 billion, equivalent to roughly $285 billion.

Deploying additional SDRs will bolster investor confidence and strengthen Africa’s economic recovery, besides preventing liquidity crises from morphing into solvency crises, the report says.

The risks facing Africa’s growth outlook include weaker-than-expected recovery among the continent’s key trading partners; abrupt tightening of financing conditions; a premature return to fiscal consolidation; climate change and extreme weather events that could cause food prices to spike; and longer-lasting COVID-19 infection rates.

READ  Naira loses 1.24% at Investors’ market as dollar shortage worsens

Most of these are contingent on the pandemic’s evolution, which could undermine the recovery process and weaken governments’ capacity to respond effectively to prolonged hardship.

Another risk facing Africa’s growth is if vaccine deployment is hindered by supply bottlenecks or some citizens’ reluctance to be vaccinated – as has been the case in parts of Europe – new waves of infection could rage. Slow growth in Africa’s main trading partners could inhibit the region’s resurgence through lower export demand and reduced investment.

READ  IFMA, UniLag aligns to enhance facility management professionalism

According to the report, the development impact of such a move will also be broad-based and longer-lasting. It will benefit low-income Debt Service Suspension Initiative (DSSI) eligible African countries as well as those larger nations, like Nigeria and Kenya, that opted out of the G20 initiative to preserve access to international capital markets and will play a key role in the region’s recovery as major drivers of intra-African trade.

Beyond providing a timely shot in the arm of the global economy’s incipient recovery, SDRs will advance the African Continental Free Trade Agreement (AfCFTA) implementation. This will involve bolstering investment in infrastructure, including climate-resilient energy infrastructure and broadband to help Africa leverage digital technologies to boost productivity growth and participate proactively in the reordering of global supply chains post-Covid-19.

READ  NNPC says it loses 200,000 barrels of oil daily to thieves, seeks military’s help

“The issuance of new SDRs is an important part to the global recovery puzzle in the aftermath of the pandemic downturn, but it is not the only piece – a robust and synchronised global recovery needed to return to pre-pandemic GDP levels will remain elusive in the absence of a strong and well-coordinated international response that enhances cross-border spillovers and global development impact of individual actions through investment and trade linkages,” the report stated.

ads

Be the first to comment

Leave a Reply