Protect the poor from impact of high food and energy prices – IMF
The International Monetary Fund has called on African governments to protect the most vulnerable households from the impact of high food and energy prices, despite limited fiscal space.
The surge in commodity prices triggered by the war in Ukraine has destabilized global commodity markets, exacerbating both inflationary pressures and food security concerns, especially for the most vulnerable who are already scarred by the pandemic.
Several countries in North Africa and the Sahel are among the most vulnerable in the world to price increases or shortages of wheat since they are highly dependent on imports from Russia and Ukraine.
Although the continent’s fuel and commodity exporters will experience a windfall gain, the positive fiscal impact could be largely offset by additional energy and food subsidies.
In contrast, high food and energy prices are straining commodity importers’ external and fiscal balances. Capital flows are also likely to be disrupted.
“We agreed that the top priority must be to protect the most vulnerable households from the impact of high food and energy prices. But the external shock is hitting the continent at a time when most countries have limited fiscal space, with high debt vulnerabilities and increased risks. In this challenging context, targeted, temporary, and transparent support to vulnerable households using and further developing social safety nets would be the most appropriate solution.
“For this effort to succeed, governments in the region, the international community, and the private sector should make concerted efforts to mobilize revenue and additional financing to support the recovery and implement needed reforms to promote inclusive and sustainable growth, achieve diversification, tackle the climate crisis, and transition to a green economy,” the Moroccan Minister of Economy and Finance Ms. Nadia Fettah, Chair of the African Caucus, and Ms. Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF) jointly issued statement after the African Consultative Group meeting on Thursday, April 21, 2022, noted.
The IMF has been playing its part and reformed its concessional lending toolkit for lowincome countries to provide greater flexibility to the access levels.
It provided emergency financing to countries with urgent balance of payments needs, debt service relief under the Catastrophe Containment and Relief Trust (CCRT) to the most vulnerable countries and enacted an historical Special Drawing Rights (SDR) allocation.
The SDR allocation boosted liquidity and reserves around the world. About US$34 billion were allocated to countries in Africa, equivalent in some countries to as much as 6 percent of GDP.
The IMF has just established a Resilience and Sustainability Trust, which will be operationalized later this year, funded by SDRs voluntarily channeled from donor countries.
It will complement the IMF’s existing lending toolkit by providing longer-term affordable financing to address longer-term challenges, including climate change and pandemic preparedness.
The ACG welcomed initial pledges of about $40 billion toward financing the RST, and encouraged other contributors to make additional pledges to ensure the RST is wellpositioned to support African countries to address their long-term challenges and build resilience.
Vaccination rates on the continent remain low and uneven, although some progress has been made in recent months.
At 13.2 percent of its population, sub-Saharan Africa remains the region with the lowest vaccination rates in the world, and at 28.1 percent, North Africa’s average rate is also still below the world average.
