On 18 May 2021 a talk by the Managing Director of the IMF at a summit on the financing of African countries noted that Africa needs to take full advantage of the shifts in the global economy toward digital-driven, low-carbon and climate resilient growth.
As a result of the recession caused by the pandemic the GDP of the African continent decreased by 1.9% in 2020. This year Africa will experience economic growth 3.2%, lower than the average global rate. Africa needs to achieve faster growth than the global average, owing to its young populations.
The IMF estimates Africa’s additional financing needs at a minimum of around USD 285 billion between now and 2025, of which USD 135 billion is needed by low-income countries. To return to the previous pre-pandemic rate of growth, narrowing the gap with wealthy countries, Africa would need around twice as much funding.
Vaccines
The first step towards renewed growth is to ensure that the pandemic is stopped, by vaccinating at least 40% of the global population by the end of 2021 and at least 60% by mid-2022. The faster vaccination would cost around USD 50 billion, but would result in higher global output of USD 9 trillion between now and 2025. To achieve this would require the donation of 500 million vaccine courses in 2021 from countries with excess supply; and increasing vaccine production capacity by 1 billion doses in early 2022.
Bilateral and multilateral development financing
Grants and concessional loans for development need to increase. In the past year the IMF has increased its financing for Africa and is working with its membership to achieve more. The IMF has been able to scale up its zero-interest lending capacity through the Poverty Reduction and Growth Trust.
Several advanced and emerging market countries intend to on-lend part of their new special drawing rights (SDRs) on concessional terms. The IMF has increased its experience in facilitating the on-lending of SDRs. Building this low-cost financing can help to meet the needs of Africa, including the need for vaccines.
Debt Relief
Efforts are needed to make the Common Framework for debt resolution fully operational. Chad, Ethiopia and Zambia have requested treatment of debt under these provisions and there is now ongoing discussion in relation to Chad’s debt treatment.
Tax reforms
The crisis resulting from the pandemic has presented an opportunity for domestic reforms to increase domestic revenue mobilisation, and strengthen governance. The digitalization of the tax administration and taxpayer services can improve administration and revenue collection. Africa can also explore new sources of finance including carbon offsets.
Private investment to improve social and physical infrastructure could be further encouraged. IMF research suggests that domestic and international investors could provide at least 3% of GDP in additional financing per year by the end of the decade.
Economic growth in Africa could also be supported by reforms in international taxation. The IMF is supporting the proposed international solution on digital tax. A fairer distribution of tax revenues could contribute to narrowing Africa’s financial gap with other regions.
