UN calls for the cancellation of $236 billion in African debt

The coronavirus pandemic is hitting developing countries, where two-thirds of humanity lives, particularly hard. That is why the United Nations, in a report published by the UNCTAD on March 30th, calls for $2.5 trillion in aid to be provided to them, including the cancellation or deferral of $236 billion of African debt.

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IMF also fears of a recession in emerging countries

The Managing Director of the IMF fears that the fall in exports and commodity prices could lead to a wave of corporate bankruptcies and layoffs in emerging countries.

At an online press conference on March 27th, Kristalina Georgieva, the managing director of the International Monetary Fund (IMF), said the world will be in recession in 2020, but did not rule out a recovery in 2021. “There can be a significant rebound, but only if we can contain the coronavirus everywhere and prevent liquidity problems arising from solvency problems,” she said.

The coming shock promises to be more severe than that of the 2008-2009 crisis

“Since the beginning of the year, there has been a strong withdrawal – $59 billion – of portfolio investments from developing countries at a faster pace than in 2008,” said Nicolas Maystre, economist in the Globalization and Development Strategy Division of UNCTAD and co-author of the report.

Emerging countries in Africa are also suffering from a fall in the prices of raw materials such as cotton (-20%), copper (-20%), and oil (-59%). Their currencies are dropping: -5% for Kenya, -15% for Nigeria and -20% for South Africa. Not to mention the collapse of tourism revenues.

The four-point strategy of UNCTAD

In response to the pandemic and the economic “tsunami” affecting developing countries, UNCTAD is calling for international solidarity to deliver on its pledges of support. It proposes a four-point strategy:

First of all, a massive liquidity injection of $1 trillion in the form of Special Drawing Rights from the International Monetary Fund (IMF) and a contribution in hard currency.

Then, a “jubilee” on the debt of countries in great difficulty in the form of a “halt to the repayment of State debts followed by a significant reduction in this debt.” That would also mobilize $1 trillion.

“Many African countries will be unable to service their debts, and refinancing them would cost them even more,” said Nicolas Maystre. For example, Egypt would have to repay this year $100.8 billion, or 40% of its gross domestic product (GDP), Nigeria $47.2 billion or 10% of its GDP and Madagascar, only $1.6 billion but which weighs 10% of its GDP. We estimate at $236 billion, the amount that would be needed to reduce this burden on African countries for which there are statistics.

UNCTAD is also calling for a “Marshall Plan” of $500 billion in grants to strengthen health services in developing countries and the creation of social protection systems.

Finally, the report suggests better control of capital movements to prevent further capital flight, to limit the risk of liquidity shortages and to halt the fall in currencies and asset prices.

The report concluded that the $2.5 trillion it proposes in this “package” is what developed countries would have had to pay to developing countries if they had kept their promise to the UN to devote 0.7% of their gross national income to aid the poorest countries.

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(Featured image by hassangill via Pixabay)

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First published in jeuneafrique, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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