Nairobi, Kenya | THE INDEPENDENT | The UN Secretary-General, António Guterres has called for urgent reforms at the World Bank and the International Monetary Fund saying their policies are unfair to Africa which is faced with a debt crisis.
The UN Chief who was in Nairobi at the high-level Africa Climate Summit said the reforms should be geared towards addressing what he described as another “injustice”
While addressing journalists in Nairobi, Guterres said the global finance system is “outdated, unfair, outdated and dysfunctional” “On average African countries pay more than four times for borrowing than the United States and eight times more than the wealthiest European countries,” he said.
He said the push for the just and equitable green transition while supporting development across Africa requires a dramatic course correction.
Guterres suggested an effective debt relief mechanism that supports payment suspensions, longer lending terms, and lower rates.
And that the multilateral development banks need to be recapitalized and change their business models so that they can massively leverage private finance at affordable rates to help developing countries develop truly sustainable paths.
He suggested a $500 billion stimulus package every year to help developing countries invest in their people and the systems they need.
Guterres is of the view that global institutions created in the aftermath of the Second World War are unjust to Africa because they came when many African countries were still ruled by colonialists.
He is of the view that the reforms should ensure that African countries are at the table of the IMF and the World Bank.
“We see these injustices playing out in the African context today. Global institutions need to step up and guarantee African representation and respond to African needs and African potential,” he urged.
The International financial system according to Guterres should have an architecture that favors developing countries in general and in particular African countries.
“And we need reforms at the security council in which Africa finally gets at least one permanent seat. We cannot afford a fractured world. We have the tools we need to guide us, the UN charter, international law, and human rights, it’s time to end injustices that are holding Africa back”
His call for reforms at the World Bank may sound like music to leaders like President Museveni who recently scorned the World Bank over some of its policies towards Africa.
The World Bank suspended lending to Uganda following the enactment of the Anti-Homosexuality law which was assented to by President Museveni. Leaders at the Climate Summit in Kenya also decried the injustice in lending rates to Africa.
It was suggested that Africa was paying five more times rates on borrowing than countries like the United States of America.
Antonio Guterres has right from the time of the COVID-19 crisis lashed at the IPMF and the World Bank for failures to deliver effectively and fairly for everyone. He has noted that it is because of those glaring failures that countries in developing sunk into deep debt crises.
The UN came up with the OCA Policy Brief 6 titled, ‘Reforms to the International Financial Architecture. It explained that the global international financial architecture which dates back to 1945 when it was designed “by and for the industrialized countries of the post-war period.”
The brief said the financial architecture has become increasingly at odds with the realities, needs, and challenges of today and is now “entirely unfit for purpose” in a world where climate change, increasing systemic risks, inequality, “highly integrated financial markets vulnerable to cross-border contagion,” and geopolitical changes are putting sustainable development to the test.
It outlined some of the inequities, gaps, and inefficiencies that its aid was “deeply rooted” in the financial architecture such as higher borrowing costs for developing countries, with many governments having to allocate a high share of revenue to debt service payments instead of investing in health, education, and social protection.
A new working paper released that month said external debt in Sub-Saharan Africa has more than tripled since 2008, with the region experiencing the largest deterioration in debt sustainability indicators across the Global South.
It found that by 2021, total Sub-Saharan Africa debt stock amounted to $539.1 billion, of which a combined 40 percent is owed to bondholders and other private creditors, 28 percent to multilateral development banks (MDBs), and 11 percent to China.
The authors of the papers observe that given the low cost of borrowing from multilateral development banks, they should provide debt relief from $13.4 to $34.5 billion, of which the World Bank International Development Association would account for $2.4 to $11.1 billion, depending on the overall debt relief efforts necessary.