Economy & Politics
Ecobank Transnational CEO warns that debt cancellation will hurt African countries
African Finance ministers had asked for debt relief from multilateral Institutions amid the coronavirus crisis.
The Group Managing Director and Chief Executive Officer of the Pan African Banking Group, Ecobank Transnational Incorporated, Ade Ayeyemi, has warned against the idea of African countries seeking debt cancellation from multilateral institutions, bilateral lenders, and international financial organizations.
Ade Ayeyemi stated this during an interview at the Bloomberg Invest Global virtual conference on Monday, July 22, 2020.
The Ecobank CEO stated that canceling the debt of heavily indebted African countries would only come back to haunt them.
According to Ayeyemi, “Forgiveness is not helpful because your debt is somebody else’s savings. When you go to the market to borrow money, the market is looking at your current and past behavior.”
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This view was also corroborated by the Chief Executive Officer of Kenya’s largest bank, Equity Group Holdings, James Mwangi, when he said that forgiveness was a form of default, which distorted markets. He pointed out that the call for debt forgiveness was one area where the continent should be conscious of the unintended consequences.
It can be recalled that in April, African Finance ministers asked for debt relief from multilateral Institutions like the International Monetary Fund, World Bank and the European Union amid the coronavirus crisis.
The African countries who asked for immediate relief from debt service obligations from these multilateral institutions including the G20, canvassed for a portion of their debt to be forgiven or converted into long term, low interest loans. This is to help free up funds for the more than 50 poor African countries to deal with the coronavirus pandemic.
Nairametrics had reported last week, the plans by China, to exempt some African countries from repaying their interest-free loans that are due at the end of 2020. It also expressed its willingness to provide further support, including loan maturing extensions, to free up funds needed to deal with the pandemic.
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IMF lifts 2021 global GDP growth to 6%
The group also warned that economic recoveries are diverging dangerously across and within countries.
The International Monetary Fund has lifted its global growth outlook to 6% in 2021 (0.5% point upgrade) and 4.4% in 2022 (0.2 percentage point upgrade), after an estimated historic contraction of -3.3% in 2020 due to the effects of the COVID-19 pandemic. This disclosure was made on the organisation’s website on Tuesday.
The group also warned that economic recoveries are diverging dangerously across and within countries, as economies with slower vaccine rollout, more limited policy support, and more reliance on tourism do less well.
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What the IMF is saying
“The upgrades in global growth for 2021 and 2022 are mainly due to upgrades for advanced economies, particularly to a sizeable upgrade for the United States (1.3 percentage points) that is expected to grow at 6.4 percent this year.
This makes the United States the only large economy projected to surpass the level of GDP it was forecast to have in 2022 in the absence of this pandemic.
China is projected to grow this year at 8.4 percent. While China’s economy had already returned to pre-pandemic GDP in 2020, many other countries are not expected to do so until 2023.”
READ: Nigeria needs structural and monetary policy reforms to unlock potential – IMF
On divergent recoveries
The IMF stated that divergent recovery paths are likely to create wider gaps in living standards across countries compared to pre-pandemic expectations.
“The average annual loss in per capita GDP over 2020–24, relative to pre-pandemic forecasts, is projected to be 5.7 percent in low-income countries and 4.7 percent in emerging markets, while in advanced economies the losses are expected to be smaller at 2.3 percent,” they said.
“Faster progress with vaccinations can uplift the forecast, while a more prolonged pandemic with virus variants that evade vaccines can lead to a sharp downgrade. Multispeed recoveries could pose financial risks if interest rates in the United States rise further in unexpected ways.“
For Africa, IMF forecasts economic growth of 3.4% in 2021 and 4% by 2022, Nigeria is expected to grow by 2.5% in 2021 and 2.3% by 2022, while South Africa is projected to hit growths of 3.1% and 2.0% for the respective years in focus.
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In case you missed it
The International Monetary Fund (IMF) identified some factors that hamper the economic recovery of low-income countries from the devastating impact of the coronavirus pandemic, factors including access to vaccines, limited policy space to respond to the crisis, the lack of means for extra spending, pre-existing vulnerabilities such as high levels of public debt in many low-income countries and sometimes weak, negative, total factor productivity performance in some low-income countries. These factors continue to act as a drag on growth.
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