Nigeria, 33 African Countries Receive $18 Billion from IMF
Nigeria and 33 African countries received a total sum of $18 billion from the International Monetary Fund, (IMF) in 2020 to cushion the effect of the outbreak of covid-19 pandemic.
In a new report, the Institute of International Finance (IIF) said that the COVID-19 crisis led to unprecedented lending by the International Monetary Fund to countries in Sub-Saharan Africa (SSA) in the period.
It noted that the SSA region could benefit substantially from the planned allocation of special drawing rights (SDRs) equivalent to $650 billion
“All in all, the Fund disbursed almost $18 billion in 2020, largely in the form of short-term instruments with limited conditionality such as the Rapid Financing Instrument (RFI) and the low-income countries-focused Rapid Credit Facility (RCF).
“34 of the region’s 43 countries received financial assistance from the IMF in some form in 2020, including SSA’s largest economies Nigeria, South Africa, Ethiopia, Kenya, Ghana, and Côte d’Ivoire”, IIF said.
It added that while the economic recovery from the pandemic shock is well underway across the continent, significant challenges remain.
This includes the exacerbation of pre-existing fiscal imbalances, saying further support from multilateral and bilateral lenders will likely be needed to deliver sustainable improvements to economic and socioeconomic conditions.
IIF said since the mid-1980s, the IMF has provided roughly $55 billion in financial assistance to countries in Sub-Saharan Africa.
“Last year’s disbursements of $17.9 billion makeup almost one-third of the total and are almost as large as the payments of the previous fifteen years combined”.
It stated that these numbers help illustrate the unprecedented nature of both the COVID-19 shock to SSA economies as well as the Fund’s contributions.
Importantly, it said short-term instruments such as the RCF and RFI account for more than 85% (or $15.2 billion) of the total, with pre-existing arrangements under the extended credit facility (ECF) and extended fund facility (EFF) playing a minor role.
“In fact, no new multi-year programs were instituted after March 2020 until Madagascar and Kenya received board approval in March-April of this year”.
Not surprisingly, Q2-Q3 2020 accounted for almost the entirety of financial assistance, with disbursements to South Africa ($4.3 billion) and Nigeria ($3.4 billion) by far the largest—followed by Ghana, Côte d’Ivoire, and Kenya.
Looking ahead, the Institute said it is important to note that a number of countries still have ongoing multi-year arrangements under which they will likely receive further assistance.
In the case of Ethiopia, recall the IMF paused disbursements under the 2019 ECF/EFF during the COVID-19 crisis, while supporting the country with $411 million under the RFI.
In February of 2021, the IMF and Ethiopian authorities reached a staff-level agreement regarding the first and second reviews of the original program, which could unlock over $600 million in additional funding.
An even larger amount ($1 billion) will be available following the completion of the third and fourth reviews. It noted that Kenya received $300 million in early April under its new $2.34 billion 38-month ECF/EFF, and the program’s disbursement schedule envisions further payments of $670 million before the end of the year.
Finally, IIF said Angola has received $490 million in 2021 so far under its 2018 EFF with around $1.4 billion outstanding.
“While review rounds and disbursements continued during the COVID-19 crisis, the program is roughly three months behind schedule and was originally to be concluded in December of this year.
“Sub-Saharan African countries could benefit substantially from the planned allocation of SDRs equivalent to $650 billion by the IMF—expected to be concluded in Q3 2020—and the potential reallocation of SDRs to low-income countries (LICs)”, it said.
The Institute however noted that due to their small quota—the region only accounts for 3.55% of the total—SSA countries would receive relatively small amounts from the initial allocation, with South Africa ($4.3 billion) and Nigeria ($3.5 billion) the two exceptions.
The report stated that a reallocation of SDRs to LICs, however, would be much more consequential. IIF said under a $100 billion scenario, the DRC and Zambia would be the largest recipients, followed by Ghana, Zimbabwe, Côte d’Ivoire, and Kenya. In total, the region would obtain close to $60 billion in SDRs.
“Beyond such considerations, we believe that the IMF will likely have to expand its engagement, specifically in the form of multiyear ECF/EFF arrangements, which address structural impediments to a strong recovery”, IIF said.
Meanwhile, it noted that Senegal and the IMF have reached a staff-level agreement over a new 18-month arrangement worth $650 million in recent weeks.
Furthermore, Uganda is reportedly discussing a $900 million three-year program with the Fund that could begin coinciding with the new fiscal year in July.
“While a recent IMF mission continued discussions with Zambia’s authorities, an agreement before the country’s general election in August is unlikely”.
In the case of Nigeria, where a multi-year arrangement with the Fund could be extremely beneficial, the Institute said the issue of exchange rate unification and normalization represents a significant obstacle that will prevent any progress in the near term.
IIF said one of the region’s most pressing issues is the deterioration of fiscal accounts due to cyclical revenue weakness and additional expenditures.
IMF Urges SSA Countries to Increase Internal Tax Revenues
However, it was noted that the Kenya program demonstrates how a realistic path to fiscal consolidation can be anchored by an IMF agreement, setting a strong example for other Sub-Saharan African countries, as IIF cited Ghana which recorded the second largest deficit (at 10.7% of GDP) among the region’s most important economies in calendar year 2020 as an example.
Nigeria, 33 African Countries Received $18 Billion from IMF
