On April 17, 2020, the World Bank and the IMF convened a meeting with African leaders, bilateral partners, and heads of other regional and multilateral institutions to galvanize support for COVID-19 response in the continent. Key private sector representatives were either silent or absent. Still, the press release issued at the end of the meeting estimated private creditor support would be around $13 billion in 2020, narrowing the financing gap significantly to an estimated $44 billion. Ultimately, private sector participation in the Debt Service Suspension Initiative (DSSI) was lacking, significantly limiting the range of financing options available to African countries.<\/p>\n\n\n\n
While exploring ways to support economic recovery in African LICs and beyond, IFIs and MDBs would be well-advised to draw lessons from the DSSI experience. They will need to make financing assumptions more realistic this time around. And a sensible way to minimize risks of estimation errors is to enable all stakeholders\u2014both public and private\u2014to speak for themselves and make their voice and concerns heard and their needs known. More generally, inclusive collaborative approaches remain critical for an international financial system that leaves no partner behind.<\/p>\n\n\n\n
In Africa, experience shows that estimates of financing needs for crisis resolution have often widely differed according to national, regional, and multilateral sources, adding confusion about the actual needs. The costing of pandemic recovery is not likely to be an exception. Efforts by multilaterals to help harmonize costing figures, in collaboration with national and regional authorities, will therefore be a useful endeavor with high potential payoff. While the IMF is expected to play an important role given its comparative advantage and recent mandatefrom the G20, African governments and regional institutions must also actively play their part. When capacity weaknesses threaten their ability to do so, multilaterals must stand ready to help with technical assistance.<\/p>\n\n\n\n
Recent patterns of ODA allocations among major donors have disproportionately favored middle-income countries over LICs. While overall commitments from IFIs and other multilateral institutions have substantially increased this year compared to 2019, the proportion of IFI commitments to LICs have actually declined during the same period, down to only 13 percent. In addition, actual disbursements by a number of multilaterals have failed to keep up with commitments made to LICs. At the same meeting, the World Bank reiterated its pledge to provide up to $160 billion in financial support, including $55 billion for Africa, over the next 15 months to \u201chelp countries protect the poor and vulnerable, support businesses, and bolster economic recovery.\u201d But recent research by my colleagues at CGD suggests that the institution has only disbursed $21 billion, and is on track to miss the actual target for IDA and IBRD lending by $25 billion.<\/p>\n\n\n\n More generally, multilaterals must rise to the challenge posed by the worst shock in generations, which LICs are currently coping with. By miscommunicating their commitments, multilaterals are poised to hurt LICs by misguiding national policymakers and development partners into underestimating actual financing needs. A good communication strategy on the part of multilateral lenders must be, therefore, a key element of their support package for pandemic recovery.<\/p>\n\n\n\n For effective contribution to pandemic recovery in Africa, MDBs and IFIs will need to break free from the business-as-usual mentality. This requires a greater sense of innovation along with a nimble response to changing culture and needs in member countries. There are three areas<\/p>\n\n\n\n where I believe innovative solutions and actions\u2014as well as a clean break from past practices\u2014are much needed:<\/strong><\/p>\n\n\n\n The pandemic crisis is taking a heavy toll on debt-distressed countries in Africa. Not only have these countries registered zero growth heading to this pandemic year, but they have also been hit harder by the crisis and will recover more slowly than their peers assessed to be in low risk of debt distress.<\/p>\n\n\n\n Against this background, there is ample scope for IFIs and MDBs to help avert a potential debt crisis in a growing number of LICs, notably by developing innovative ways to help facilitate debt restructuring and avoid new episodes of debt distress. Concrete actions expected from MDBs and IFIs include:<\/p>\n\n\n\n Multilateral support for LICs\u2019 pandemic recovery plans must hinge on a thorough assessment of their sustainability. In turn, this implies due consideration of the soundness of the policy and reform packages that underpin these plans. In addition to the IMF\u2019s work in this area, multilaterals still use a variety of other assessment tools, resulting in an unproductive proliferation of institution-specific conditions and targets set for LICs to meet. Multilateral institutions should agree on a collaborative approach to supporting and assessing recovery plans. To this end, the time is long overdue for concrete steps to materialize the recommendation of the G20 Eminent Persons Group to enhance the impact of development policies and financing by \u201cgoverning the system as a system rather than as individual institutions.\u201d<\/p>\n\n\n\n The renewed interest in country platforms from the Italian chair of the G20 is a hopeful sign. My colleague Mark Plant suggests in previous work that satisfactory progress on this front will require answers to hard questions, including about their purpose, inclusiveness, appropriate M&E framework, and the respective role of involved stakeholders. In the current context, quick recovery is clearly a strong objective any platform could legitimately seek to achieve. And for more effective support to recovery efforts, MDBs and IFIs need to coalesce around select domestic and regional policy initiatives and programs with demonstrated growth potential. At the same time, helping make the recovery inclusive should rank high on the agenda, as this was a key shortcoming of the Poverty Reduction Strategy Paper initiative in sub-Saharan Africa.<\/p>\n\n\n\n There is a need for country platforms to help find effective solutions to the free-rider problem that is typically associated with the execution of global development initiatives. The implementation of the G20\u2019s Compact with Africa is illustrative, as the strength of the commitment to the initiative was perceived in its early stages to be uneven across the IMF, the World Bank, and the African Development Bank. While implementing investment promotion initiatives in which they team up with multilaterals and other development partners, many LIC officials have also expressed frustration about being among the few sides\u2014if not the only\u2014expected to make binding and actionable commitments. Under any new country partnership, it is, therefore, critical to ensure that each participating stakeholder commits to specific, concrete, and time-bound actions to help achieve set goals.<\/p>\n\n\n\n In July 2015, as part of the Addis Ababa Action Agenda, leaders from 193 UN member states encouraged MDBs to “further develop instruments to channel the resources of long-term investors towards sustainable development.\u201d In response, various initiatives have since been taken. In 2017, MDBs and DFIs targeted a 25-35 percent increase in the mobilization and catalyzation of private capital over three years, in line with the Hamburg Principles adopted by the G20. More recently, several MDBs adopted the common \u201cvalue for money\u201d framework, which is an innovative solution aimed at optimizing the use of available concessional and nonconcessional resources.<\/p>\n\n\n\n The thinking and rhetoric have evolved in recent years, but must be meet with actions if multilaterals\u2019 strong potential to help boost private investment are to be fulfilled. While it is still early to predict the outcome of these initiatives, a number of missteps give little reasons to be optimistic about their capacity to support efficiently pandemic recovery plans by mobilizing sustainable private finance at decisive levels. A joint collaborative framework among key multilaterals to achieve this goal is still lacking. In addition, no meaningful consultative process on a broad scale has thus far been undertaken to bring onboard private sector stakeholders from aid-recipient countries.<\/p>\n\n\n\n LICs and their multilateral partners must take more decisive steps, including overcoming regulatory impediments to deeper and more inclusive domestic financial sector and catalyzing private investment through innovative instruments such as diaspora and green bonds. Critically, they should join efforts to implement an ambitious reform agenda that addresses both the demand and supply sides of corruption which remains a serious impediment to private sector development and economic growth.<\/p>\n\n\n\n Clearly, strong and resilient pandemic recovery in African LICs will need to build on the leading engagement of their own governments. But it also hinges on multilaterals\u2019 effective support, with their financing and advisory solutions being tailored to country- and region-specific circumstances. Ultimately, success will require greater accountability, bold leadership, and a genuine reform drive from both African governments and their multilateral partners.<\/p>\n\n\n\n African LICs may be caught in the same pandemic storm, but they are not all in the same boat.![\"\"](\"https:\/\/africatalyst.com\/credit-ratings\/wp-content\/uploads\/2023\/10\/image.png\")
<\/figure>\n\n\n\n<\/a>Think and act outside the box<\/strong><\/strong><\/h2>\n\n\n\n
<\/a>1. Debt crisis prevention and resolution<\/strong><\/h3>\n\n\n\n
<\/a>Figure 2. Comparison of economic outlook for African LICs according to debt situation<\/strong><\/h3>\n\n\n\n
![\"\"](\"https:\/\/africatalyst.com\/credit-ratings\/wp-content\/uploads\/2023\/10\/image-1.png\")
<\/figure>\n\n\n\n<\/a>Source: IMF and author\u2019s calculations.<\/h5>\n\n\n\n
<\/a>Note: Countries selected based on the IMF-World Bank Debt Sustainability Framework, which classifies six African countries as being in debt distress as of November 2020: the Republic of Congo, Mozambique, Sao Tome and Principe, Somalia, Sudan, and Zimbabwe. Zambia is added to the list in light of recent developments. Countries assessed to be in low risk of debt distress are Madagascar, Tanzania, and Uganda.<\/h5>\n\n\n\n
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<\/a>2. Country platforms<\/h3>\n\n\n\n
<\/a>3. Private finance<\/strong><\/h3>\n\n\n\n
<\/a>Moving forward with responses that match circumstances<\/h2>\n\n\n\n
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