France New Deal for Africa not Without Strings Attached
As France pushes new deal for African countries over a high level of debts in the region, experts at South Africa-based NKC African Economics have said the development will not be without strings attached.
France’s President Emmanuel Macron has been trying to position his country as an interlocutor of choice for heavily indebted African countries – as illustrated the day before the summit, Monday, May 17, when France said it intended to cancel $5 billion in debt Sudan owes it.
He has also spoken of the need for a “New Deal for Africa”, referring to the debt-financed investment boom in post-World War II USA.
Speaking after the summit, Mr. Macron said he was in favour of rich countries that do not need their entire Special Drawing Rights (SDR) quotas reallocating them to poorer ones.
In a macroeconomic commentary, NKC Economics said the instruments certainly look like an attractive financing option available to poor countries, noted that the interest rate on drawn SDRs is currently 0.05%, compared to rates on hard-currency debt that can go above 8%.
SDRs are only a loan in a very technical sense, though, as they are never paid back. “Rich countries can help, but what will they want in return?” the Oxford Economics asked.
“We are fairly sure that the issuance of new SDRs will go ahead. The breathing room that this will create for African countries will, in many cases if not all, unlock loans and investment from other international finance institutions and the private sector, and this is positive.
“Mr. Macron’s idea of rich countries handing their SDR allocations to poor ones is interesting, and we think it will happen in a targeted way, with strings attached.
“Given the size of Africa’s debt pile, its leaders have little choice but to make concessions to the demands of lenders, and a key question for the future is what those demands will be”, NKC Economics explained. .
Recall the Summit on the Financing of African Economies took place in Paris on Tuesday, May 18, to discuss ways in which the international community, international financial institutions, and the private sector can boost financing flows to African economies to help them recover from the shock of the Covid-19 pandemic.
About 30 heads of African and European states were present, as were officials from international financial institutions; China participated remotely.
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The most important commitment made was a reaffirmation by IMF director Kristalina Georgieva that the IMF will proceed with a global allocation of $650bn in new special drawing rights (SDRs) this year.
Given how SDRs are allocated in proportion to member countries’ contribution to the Fund, only $33bn will go to Africa, with $24bn thereof directed towards sub-Saharan Africa.
Ms. Georgieva said that a technical team will be put to work between June and October. The amount is short of the $285bn that the IMF itself reckons Africa will need in 2021-25.
France New Deal for Africa not Without Strings Attached
