Africa finds ‘no mercy’ from global cash crunch it didn’t cause
African finance ministers appealed for help and “common humanity” in their fight against a vicious funding squeeze caused by mistakes its politicians blame on wealthy countries, which the Israel-Hamas war may now make worse.
Higher interest rates and surging inflation after the US and Europe spent trillions of dollars during the pandemic hit poor nations from both sides, said Egyptian Finance Minister Mohamed Maait.
“We have to pay the cost,” he said Saturday in Marrakech, Morocco during an event on the sidelines of the annual meetings of the International Monetary Fund and World Bank. “With the war, the pain becomes very hard for us.”
The potential risk to the global economy from a widening Middle East conflict – and what that would mean for poor nations already in debt distress – has been a key concern during the gatherings. The meeting is being held in Africa for the first time since 1973.
Surging food prices in the aftermath Russia’s invasion of Ukraine have caused a cost of living crisis across Africa, while heavy borrowing costs are raising the risk of default.
Zambia on Saturday confirmed it had agreed to a memorandum of understanding to restructure its loans with official creditors, co-led by China and France, finalizing a $6.3-billion deal reached almost four months ago.
Egypt is in talks with the IMF to boost its rescue program to over $5 billion from $3 billion, according to people familiar with the discussions.
Maait, on Saturday, said it “went east” to find affordable lending and will issue a panda bond next week, because western capital markets became too costly.
“The issue of high debt, high debt financing, low liquidity — all these represent the challenges we’re facing,” he told the event hosted by the African Center for Economic Transformation and the Policy Center for the New South. “The rating agencies have no mercy to our situation.”
The IMF estimates that more than half of Africa’s low-income countries either face a high risk of debt distress or are already experiencing it. Other countries have seen the average yields on their outstanding eurobonds rise to more than 12% from 7% before the pandemic.
Kenya is one of the countries that has to refinance in a climate of much higher rates, and is weighing borrowing from multilateral and bilateral lenders to repay a $2 billion eurobond in June.
“We’re not facing a solvency problem, we’re facing a liquidity challenge,” said Treasury Secretary Njuguna Ndung’u. “But how we solve those liquidity challenges can become a solvency problem.”
Boosting the resources of the Washington-based lenders to help them massively increase the amount of funding they can provide the region has been a key theme of the meetings.
But that requires the support of major shareholders and so far it’s not been forthcoming because of a lack of political will, Ghana’s finance minister said.
“You wonder where is the leadership of the past? The FDRs, the Mandelas,” said Ghanaian Finance Minister Ken Ofori-Atta. “It is a question of where our common humanity is.”
