By Samuel Obedgiu
If I remember well, it was in early
April this year when Uganda’s
secretary to the treasury, Mr.
Ramadan Ggoobi tweeted about his
trip to attend the IMF/World Bank
Spring Meetings in Washington DC.
That very same tweet just confirmed
to many Africans what we already
knew.
Mr. Ramadan Ggoobi’s tweet
stated that International funding is
declining & non-concessional sources
are getting more expensive, and
that the little money available (both
concessional and non-concessional)
is slowly moving to financing mainly
climate-smart investments.
This IMF/World Bank Spring
Meetings in Washington DC came at
the time when a research paper titled
“China as an International Lender of
Last Resort” was released by majorly
western academics from Harvard and
other western universities.
In this paper, the researchers found
128 bailout loans worth $240 billion
dollars to 20 mostly poor countries
between 2000 and 2021. The vast
majority of these loans were extended
over the last five years, and almost half
happened in 2019-2021. Moreover,
the researchers found that People’s
Bank of China swap lines are far more
meaningful than direct loans. This
paper concluded that china is now
extending credit to bail out its banks
that made loans to African countries
that undertook projects that were not
economically viable to repay Chinese
lenders.
Net transfers from Chinese lenders
to developing countries recipients turned negative in 2019, after peaking in 2016. What this means is that
Chinese policy banks have flipped
from being a source of capital to
African countries into a new role of
African debt collector.
One might think that the IMF
will easily step in to lend African
governments because, for years, it
has been the world’s greatest lender
of last resort.
This has become more complicated of late. Recently The IMF
is struggling to get money out of the
fund to economies that need it now
more than ever. The Fund is sitting
on a $1 trillion pile of cash that it’s
just not lending. Why? The Paris club
dominated by American rules and
China on the other side don’t agree
on the rules of lending. This has made
resolving debt crises on the continent
harder like we have seen in Zambia
2020.
This further complicates the
IMF’s lending strategy because the
Fund only lends to countries with
sustainable debt ratios that in its view
can easily pay the fund back. The IMF
doesn’t lend African countries to pay
Chinese loans. The IMF only lends
to fix economies and help them with
their balance of payments problems
According the IMF, public debt as
a share of GDP reached an average
of 56% in 2022 in the whole of subSaharan Africa. African governments
are now spending a 5th of their
revenues to service debts due to the
strengthening of the dollar.
The solution to Africa’s funding
squeeze is Africans should trust the
International financing mechanisms
less. African countries should build
up massive reserves of cash and swap
lines between various African nations
so that we don’t have to need IMF as
much as we do now, when countries
like Brazil, India and Thailand in
the 1980s and 90s became distrustful
of the IMF, this is they did. When I
saw the Tanzanian president calling
out her Kenyan counterpart that
had dollar illiquidity issues, I got
concerned.
African economies should balance
the trend of being export economies
and investing in Africans economies
to create demand for what they
produce at home. Once African
governments increase employment
and give their people decent incomes,
investors will come into the continent.
This will develop our local capital
markets, which means that there
will be capital denominated in local
currency that African governments
can access rather than seeking foreign
currency denominated debt■
