[Tribune] Coronavirus: faced with the crisis, the IMF could do more
Advisor to the Senegalese presidency and former administrator at the International Monetary Fund, Daouda Sembène proposes five measures to be put in place to deal with this exceptional crisis.
A global crisis like no other needs a global response like no other. This is, in essence, what the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, said. In Africa, estimates of financing needs are around $114 billion, of which more than a third has yet to be mobilized.
Encouragingly, the IMF has temporarily doubled the access limits to its emergency concessional financing instrument and its non-concessional equivalent. The institution also provided 25 vulnerable low-income countries (LICs) with debt service relief for an initial duration of six months and a total estimated amount of $213.4 million
These initiatives will help the countries concerned to quickly access tens of billions of dollars. That said, for these countries, which represent nearly 40 % of the IMF’s membership, to fully benefit from the institution’s current $1 trillion lending capacity, much remains to be done. Several avenues must be explored:
Increase IMF concessional lending capacity
In its current form, the concessional short-term financing window is designed to be financially self-sustaining. It can support average annual loans of approximately $1.7 billion. The IMF intends to triple this lending capacity. This objective, although ambitious, does not however seem to match the anticipated financing needs of LICs.
Allocate Special Drawing Rights (SDRs).
The IMF should make this measure a key part of its action, as was the case during the 2008 global financial crisis. However, the size of SDR allocations must be larger than in the past because the economic impact of the pandemic is much more disastrous. And LICs should benefit from a larger share of these emissions than that received in 2009 (around twenty billion out of a total of 283 billion dollars).
The IMF should also work actively with its large shareholders to ensure that unused SDRs are transferred to it, with the aim of increasing its concessional lending capacity.
Facilitate debt relief negotiations
Building on the experience gained under the HIPC [Heavily Indebted Poor Countries] and MDRI [Multilateral Debt Relief Initiative] initiatives, the IMF and the World Bank are well positioned to pursue a coordinated approach that will deliver effectiveness. That said, any debt relief mechanism should take into account the need to maintain LICs’ access to international markets on favorable terms.
“THE IMF MUST FINANCE LOW-INCOME COUNTRIES BASED ON THEIR NEEDS RATHER THAN THEIR ECONOMIC SIZE”
To do this, one point is essential: avoid stigmatizing debtor countries by developing an appropriate communication strategy and by not limiting the benefits of debt relief to countries that request it. In this context, the SDR system could also make it possible to reduce the costs of access to debt.
Improving access to other IMF financial resources
This means re-examining policies for access to the non-concessional window. While it is conceivable that concessional lending should be limited due to resource scarcity, access to other types of IMF financing should not be capped for LICs with sustainable debt levels.
Accelerate quota reform
This is a crucial point for increasing the financial resources of the IMF, which however requires the political support of member countries. Once such membership is secured, an increase in quotas could be financed, again, by an allocation of SDRs. The current situation also requires ensuring that IMF financing reflects less the economic size of LICs than their needs to deal with the crisis.
If the role of the IMF is fundamental, all international financial institutions and multilateral development banks will have to play their part to find bold and innovative financing solutions in favor of LICs. Ultimately, most of the effort falls to the governments of the member countries of these institutions. Failing that, the unparalleled global response could be an unparalleled global failure .