EDITORIAL: The decision of the International Monetary Fund (IMF) board to increase the volume of interest-free loans to low income countries, 'to help them recover from the pandemic's economic destruction', is timely and very welcome. It seems this decision was taken when the Fund realised that the pandemic had drained resources meant for these countries, most of which are in sub-Saharan Africa, much faster than it had calculated. And since the nature of this crisis is such that no country is truly safe till all countries are truly safe, the sooner enough money is sprinkled across Africa to get everybody vaccinated, at least, the better for the whole world and eventually the global economy.
Africa has been badly rattled by Covid-19, no doubt, but its financial problems are much deeper. It's been struck by famines, civil wars, and Boko Haram like militant outfits rampaging across the continent for quite a while, which is why it was the weakest link in the global financial chain since long before the pandemic. And that is precisely why it also has the lowest vaccination rates of any region in the world so far. As things stand, they cannot be expected to put aside any more resources for stimulus or even vaccination programmes than they already have, and so long as the virus remains alive there nobody in the entire world will be safe, so IMF's plan to intervene might deliver it the kiss of life at just the right time.
To help move things along, one of the more interesting changes the IMF has made in its lending regime is a 45 percent increase in the limits on normal lending, along with removal altogether of caps on access to funds for the poorest countries. Yet it has also made it very clear that this facility does not amount to a blank cheque; just so some senior politicians in some of the countries don't get any smart ideas about the money that is about to flow into their central banks. In the very initial stages this programme will simply provide the flexibility to advance more zero interest financing for countries with "strong economic programmes to handle the pandemic and the path to full recovery," according to the Fund's deputy director of the strategy policy and review department.
That means that the countries lining up for these loans will have to first make detailed and transparent plans for the use of the money. In that way, the Fund will know just where to start from and how to monitor the whole thing. This arrangement has come at an opportune time for the African continent. Because unless a lot of money is made available to a number of the poorest countries, there's a very good chance that some of them might really go under. And even the remotest prospect of such a thing happening is enough to throw international financial markets into a tailspin and ruin the recovery for everybody else as well.
To give it credit, IMF has taken the lead in carving out special programmes to help struggling economies right through the pandemic. It set aside its usual lending policy in 2020, which is providing crisis financing through multi-year lending arrangements, and pushed most of the aid through emergency programmes that disbursed immediately and were not conditioned on economic policies. It also increased its financing to poor nations by eight times compared to the previous three years, and plans to hold the "elevated levels" for a few more years.
Now it's up to African countries to take full advantage of this window. The world's lenders, who have their hand on the pulse of the international economy all the time, can flood it with all the spare money they can come up with, but it has to go to the right places for things to improve. Otherwise, the African continent might well become the black hole that sucks the life out of the world economy.
Copyright Business Recorder, 2021
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