President Akufo-Addo is calling for the restructuring of the global financial architecture so it can respond better to Africa’s needs, as well as for the cancellation of debts owed by African countries in the wake of COVID-19.
Speaking at the Summit on Financing African Economies in France on Tuesday 18 May 2021, Akufo-Addo said the Bretton Woods Conference, which took place as World War II drew to a close, created a global financial architecture which has proven unfavourable for Africa over the past 77 years.
The economies of Europe, America and Asia have grown significantly during that time while those of Africa have not, President Akufo-Addo said.
He attributed the imbalance to collateral damage from the Cold War, inequity in the global economic system, an economic relationship built on power and resource grab. Other problems confronting the African continent are defects in leadership and governance, he said.
“These challenges have resulted in a global economic system that has proven to be incapable of supporting lives and livelihoods, and allocating sufficient long-term resources to support Africa’s economic transformation,” the president said.
He noted further that Africa’s development finance cost does not reflect its economic fundamentals, credit or default cost. He cited the case of Ghana, whose sovereign debt is more expensive than that of the similarly rated Belarus, which pays roughly 100 basis points less than Ghana.
The structural inequities confronting African economies, the president stressed, have been made worse by COVID-19, as shown by the fact that a mere 2% of the 1.3 billion vaccine doses administered globally by the end of April were in Africa.
“The pandemic has also ensured that the total fiscal deficit of Africa rose from 4.7% of GDP in 2019 to 8.7% in 2020; overall debt levels are also estimated to have increased from 57% of GDP in 2019 to 70% in 2021.
“Without the ‘fiscal room to breathe’, Africa could truly become the forgotten continent, and that is why there is urgent need for comprehensive debt relief and debt cancellation,” President Akufo-Addo declared.
He continued, “Just as the Bretton Woods institutions helped to rebuild the postwar global economy and rekindled international economic co-operation 77 years ago, there is now a historic opportunity to reset the global financial system’s economic rules to give African countries an equal chance at development in the wake of the pandemic.”
Let’s have a firewall
President Akufo-Addo proposed two solutions at the conference to help address the situation confronting the African continent.
Beyond the two pillars announced by President Emmanuel Macron, President Akufo-Addo suggested a third pillar, which should focus on restructuring the global financial architecture to provide for access and equity to long-term finance to support economic transformation in Africa.
“This should include the establishment of an African Stability Mechanism, akin to the European Stability Mechanism. The African Stability Mechanism will be a permanent firewall for Africa to safeguard and provide instant emergency access to financial assistance for countries in financial difficulty,” he said.
The second solution the president proposed is to bridge the immediate liquidity and potential insolvency issues confronting the continent and its financial institutions.
“I urge the IMF to on-lend 25 to 30% of new US$650 billion SDRs [special drawing rights] to support low and vulnerable middle-income countries before the 2021 annual meetings; increase IDA [international development assistance] funding to strengthen the balance sheet of the World Bank; replenish the African Development Bank and Afreximbank to support investment in green investments; facilitate trade and support the private sector to create jobs and build back better,” he said.
With Africa poised to become home to a quarter of the world’s population and more than half of the global youth population by 2050, and with a potential GDP of US$29 trillion, President Akufo-Addo told the gathering: “It is thus in our collective interest to create the conditions that will enable such a development to be of benefit to the entire globe.”