The pandemic’s effects on Africa are “not a passing frigate, but a … dislocation of at least three years”.
These and other impacts of COVID-19 on developing countries were the focus of a meeting of ministers of finance to consider a menu of policy options developed over several months.
The initiative is led by the UN Deputy Secretary-General and the finance ministers of Canada and Jamaica.
A group of finance ministers has prepared a menu of policy options on recovering from the COVID-19 crisis and mobilizing the financial resources needed to achieve the 2030 Agenda. Heads of State and Government will consider the policy menu at a high-level event on 29 September 2020.
Just like people with pre-existing conditions, countries with weaker economic fundamentals suffer more from COVID-19.
Speakers explained that developing countries are bearing the brunt of the pandemic in many ways. As Ghana’s minister for finance said, the pandemic’s effects on Africa are “not a passing frigate, but a … dislocation of at least three years.”
Among the examples given:
- Fiji has no active cases of COVID-19, but has lost revenue due to tourism and remittance declines. Similarly, the Maldives felt economic impacts of the pandemic before a case of COVID-19 was discovered locally, as it had to stop tourism for over three months – “the engine of our economic growth.”
- Ghana could lose USD 1 billion through illicit financial flows, which is more than its entire health budget.
- South Africa has the same debt-to-GDP ratio as Germany, but South Africa’s debt service payments are 4% of its GDP, while Germany’s are 0.7%. “This cannot be the right thing to do” in a time of such dire need, said Vera Songwe, UN Economic Commission for Africa (UNECA). High debt payments mean compromising test kits, tracing programmes, and acquiring vaccines.
- Africa has no reserve currency, and will need USD 100billion/year to begin recovery.
The meeting on 8 September 2020 was convened by UN Deputy Secretary-General Amina Mohammed and the finance ministers of Canada and Jamaica. Opening the meeting, the two convening ministers stressed the need for a multilateral response to the pandemic and the related economic crisis. Chrystia Freeland, Minister of Finance of Canada, acknowledged that the least developed countries (LDCs) feel the effects most acutely, lacking the resources to adopt recovery measures. Nigel Clarke, Minister of Finance of Jamaica, said the need for a global response to the pandemic has only increased, as its center of gravity has shifted to developing countries.
International officials then highlighted economic trends resulting from the pandemic, three priorities for policy makers, and the menu of policy options. International Monetary Fund (IMF) Managing Director Kristalina Georgieva said countries with weaker economic fundamentals suffer more from COVID-19, just like people with pre-existing conditions. She said countries that already had high debt levels are in terrible trouble, and tourism-dependent economies “are on their knees.” The priorities now are to: maintain support for these countries until their economies are fully turned around; extend the Debt Service Suspension Initiative (DSSI) for another year; and invest in education, digital capacity, human capital, health systems, and social protection.
Mahmoud Mohieldin, UN Special Envoy on Financing the 2030 Agenda for Sustainable Development, said the menu of policy options provides measures for emergency response, recovery, and stability. Emergency mobilization measures could include extending and broadening the DSSI, declaring remittance services essential, and extending debt swap lines and special drawing rights (SDRs). Sustainable and inclusive recovering measures could include debt cancellations, debt-for-climate or debt-for-SDG swaps, and scaling up social protection and health coverage. Policy options for enabling a sustainable and resilient future including adopting climate-related financial risk disclosures, phasing out fossil fuel subsidies, and integrating the SDGs into national budgets.
Members of six discussion groups presented key findings of their work in June, July and August 2020, which generated the menu of policy options. For the group on external finance, remittances, jobs, and inclusive growth (Group 1), Japan reported that the G20 and Paris Club have agreed on an extension of the DSSI, and called for private sector funding. China announced that it is actively considering the DSSI extension. Egypt supported debt equity swaps to finance SDG-related investment.
On recovering better for sustainability (Group 2), the European Commissioner for Crisis Management stressed the need for a “green, digital, just, and resilient” recovery. Related policy options would support strong health systems, resource-efficient growth, and an open and secure digital society. He said this requires both public and private investment to fully align with the Paris Agreement and the SDGs. Rwanda said that in addition to an extended DSSI, developing countries also need: adjustments to the DSSI terms, debt restructuring, a replenished IDA 20, and access to financial markets at zero cost. “This is the road map” to recover better.
The UK said countries’ recovery plans should incorporate updated and enhanced climate NDCs, and they should align spending with the Paris Agreement. The UK will host the Glasgow Climate Change Conference in November 2021 (UNFCCC COP 26).
The UN Development Programme (UNDP) said digitalization can help mobilize finance and is a lifeline in this crisis. The International Development Finance Club (IDFC) said public development banks (PDBs) can help bridge the SDGs, Paris Agreement, and local policies, and momentum us growing between PDBs and stakeholders. IDFC announced that it will hold the ‘Finance in Common Summit’ on 12 November 2020, the first global meeting for all PDBs.
On global liquidity and financial stability (Group 3), Costa Rica announced a proposal for a USD 1 trillion fund to support emerging and poor countries with concessional loans for COVID-19 impacts. The World Bank echoed the importance of concessionality. Ghana said the SDR system should be extended. He cited a “disaster waiting to happen [in 2021] as countries begin to default.”
France and the World Bank indicated support for extending the DSSI. The World Bank added that more participation is needed from the private sector.
The Maldives proposed a tourism fund to ramp up testing in airports to restore trust in global travel. The UN Economic Commission for Africa (UNECA) recommended a liquidity and sustainability facility to bring down the rates for debt service payments.
On debt vulnerability (Group 4), Pakistan said participation in the DSSI should not affect credit ratings. The African Union (AU) Commission said extending the DSSI is critical: “African countries need liquidity.”
The US said the G20 and Paris Club could consider further steps in 2021, depending on countries’ actions in the meantime, such as improving public financial management and directing investment to projects that strengthen economic growth).
The UN Economic Commission for Latin America and the Caribbean (ECLAC) called or a debt swap for climate change to create a Caribbean resilience fund, which would require 12% of the total public debt (USD 7 billion).
On private sector creditors engagement (Group 5), Senegal said private sector DSSI might be relevant for certain countries, but it is not relevant for all, and “certainly not for Senegal.” Instead, it would “kick the can down the road” for countries that already have expensive commercial debt. Official debt cancellation will be needed for some countries, he stressed.
The Organization for Economic Co-operation and Development (OECD) said the aftermath of COVID-19 for developing countries – hunger, starvation, and poverty – will make its health consequences look very small.
Finally, on illicit financial flows (IFFs) (Group 6), Nigeria called for mutual legal assistance to address barriers to international cooperation. The Financial Action Task Force (FATAF) reported that the pandemic has been used to generate illicit funds, which are now flowing out of developing countries just when health services need it most. The solution is to implement the FATAF standards, he suggested.
Oxfam endorsed the recommendation to support the Addis Tax Initiative’s (ATI) 2020 mandate, and called for a UN tax convention to address tax havens, tax abuse, and other IFFs.
The ministers’ meeting will be followed by a Meeting of Heads and State and Government on 29 September to consider the policy options, and a series of thematic and regional meetings from October to December.
A follow-up meeting in December 2020 is being planned in order to benchmark progress in the context of the Decade of SDG Action. [IISD Sources] [Publication: Financing for Development in the Era of COVID-19 and Beyond: Menu of Options for the Considerations of Ministers of Finance: Part I (Executive Summary of outcomes) [Publication: Financing for Development in the Era of COVID-19 and Beyond: Menu of Options for the Considerations of Ministers of Finance: Part II (Menu of options from each discussion group)] [UN News story on meeting] [Meeting webcast] [SDG Knowledge Hub story on roundtable of female economists, 3 September] [SDG Knowledge Hub story on Group of Friends of Financing the SDGs virtual conference, April 2020]