Debts of African countries: major creditors agree on a moratorium

Text by: Olivier Rogez Follow

France wanted to cancel the debt of African countries. For now, it has obtained a moratorium from the Paris club (the lending countries) and the G20.

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This year 2020, the 76 poorest countries on the planet, including forty African countries, had to repay a total of $ 32 billion . Paris obtained the moratorium at the level of bilateral and private creditors, that is to say a total of twenty billion dollars. China, one of Africa's biggest creditors, has accepted this principle. The 12 billion claims owed by these countries to the World Bank remain. According to Paris, an agreement is on the right track, it may even be announced this week at the IMF and World Bank spring meetings in Washington. The latter had declared herself in favor of a moratorium on the debt of African countries.

Two weeks ago, African finance ministers wanted a $ 44 billion moratorium. The agreement obtained by France is therefore below their expectations, but " it's a first step ", as Bruno Le Maire said this morning . The French Minister for the Economy does not exclude that cancellations " on a case by case and in a multilateral framework " could take place.

The question of outright debt cancellation for African countries is an important one. Many countries are spending more on debt repayment than on their health systems, an African Union report recently highlighted. In addition, some twenty African countries are too indebted and seven of them are considered to be over-indebted, including the Republic of Congo, for example. But some public and private creditors are not yet in favor of a cancellation.

China, the biggest creditor

It would be interesting, for example, to know the opinion of China, which is one of Africa's biggest creditors with a debt stock estimated at 145 billion dollars, if we count the debt of its companies. In addition, part of this African debt is private, it is due to companies, commodity traders, banks and investment funds. It also sometimes involves direct borrowing by African states on the financial markets, the famous eurobonds. And for this debt " we still have to find a mechanism, " said Albert Zeufack, the chief economist for Africa at the World Bank, recently.

For its part, the International Monetary Fund did not wait for the moratorium on public creditors to act. As of Tuesday evening, IMF Managing Director Kristalina Georgieva announced that the Fund would pay the debt service of 25 low-income countries, including nineteen African countries, for a period of six months. This amounts to canceling part of the debt of these countries to the IMF. The Bretton Wood Institution has also been playing firefighters for several weeks. She declared that she was ready to urgently disburse credits for the African countries which need money in order to face the economic consequences of the pandemic. Last week about twenty African countries had applied, they are probably more today.

Many have received funding. For example Tunisia got $ 745 million on April 10, Senegal $ 440 million on April 13 and Ghana just received, this Tuesday, April 14, a billion dollars. This money is paid through two mechanisms: the Rapid Credit Facility (FCR) and the Emergency Financial Instrument (IFR). These are essentially zero rate loans with a very advantageous repayment term. But it should be made clear that these are not donations. It is money that will ultimately add to the stock of state debt.

■ What aid for Africa in the time of the coronavirus

IMF, $ 100 billion
The International Monetary Fund said it at the start of the crisis, it has a firepower of 1,000 billion dollars for those of its 189 members who need money. IMF Managing Director Kristalina Georgieva pays particular attention to low-income countries, especially African countries. Emergency funds have been increased to $ 100 billion. For the past few weeks, all the African countries which request it have received emergency aid through two mechanisms, the Extended Credit Facility (ECF), zero-rate loans for low-income countries, and the rapid financing instrument. (IFR), loans on advantageous terms open to all countries. In addition, the Disaster Assistance and Response Trust Fund has been revamped and will be increased to $ 1.4 billion. It allows countries facing debt maturities to receive compensation in the form of grants. 19 African countries have thus just been endowed for six months, during which period the IMF pays their debts.

World Bank, $ 14 billion for Africa and over fifteen months an additional $ 160 billion for developing countries
The second largest financial institution in the world has also released the checkbook with its sights on aid to businesses, whatever their size. For Africa, the World Bank is determined to support all sectors and in particular insists on the needs of the informal sector, knowing that the vast majority of workers in Africa are in this case. Eight of the $ 14 billion will go to businesses.

AfDB, African Development Bank, $ 10 billion
The plan announced by the AfDB is the most ambitious ever drawn up by the Pan-African institution. $ 1.4 billion out of 10 will go directly to the private sector. The rest is divided between direct aid to the States and the replenishment of the African Development Fund.

European Union, € 14 billion
Announced by the President of the European Commission, Ursula Von Der Leyen, the envelope will go 90% to African countries, and in particular to companies which will benefit from 8 billion euros out of the 14 proposed. These are largely funds available through the EDFs, European Development Funds, and the reallocation of resources already budgeted for the countries of the South. France, which will participate in this plan, also announces 1.2 billion euros in health and food aid for a group of nineteen countries.

Afreximbank, $ 3 billion
The African import-export bank has also concocted its support plan for Africa. The funds it makes available will be used by the countries that need them to finance the international trade operations on which they are engaged. These are mainly credit facilities granted to central banks.

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