Governor of the Bank of Ghana (BoG), Dr. Ernest Addison, has advocated for an expedited debt restructuring process for vulnerable members of the G20, which includes countries such as Ghana, Ethiopia, and Malawi.
This call follows recent agreements made between Zambia, Chad, and their respective creditors, highlighting the importance of shielding these nations from potential domestic financial market instability.
Dr. Addison made these remarks during an African Caucus Meeting focused on the theme of “Leveraging Public Debt for Sustainable Growth in Africa” held at the ongoing International Monetary Fund (IMF)/World Bank Group (WBG) Annual Meetings in Marrakech, Morocco.
“While welcoming the latest developments on Zambia and Chad, we underscore the need to revamp the G20 Common Framework (CF) to ensure timely, orderly, equitable, inclusive, and transparent debt restructuring for distressed members in the region (including, Ghana, Ethiopia, and Malawi),” he said.
“We also call for a carefully designed debt resolution mechanism, especially, for vulnerable members with large-domestic creditors (as in the case of Ghana) to help avert domestic financial market instability,” the BoG Governor added.
The Governor emphasized the significance of enhanced engagement between debtors and creditors, emphasizing the need for an improved Global Sovereign Debt Roundtable (GSDR) and enhanced technical support. These measures are essential to facilitate a more efficient, proactive, and systematic debt restructuring process.
“We also reaffirm the request for debt standstill during times of negotiations to offer immediate relief to debtors and restate our request for multilateral debt cancellation for the most vulnerable members facing acute debt challenges,” Dr Addison said.
He emphasized the need for improved cooperation between the IMF and Multilateral Development Banks/Regional Development Banks to ensure the prompt delivery of financial aid to G20 member countries grappling with substantial debt and growth difficulties.
“In this context, we restate the call for new SDR allocation through the MDBs/RDBs’ (including the African Development Bank – AfDB), given their multiplier effects in achieving climate and development goals,” he said.
“Given the fragmented global financial architecture, we urge the IMF to remain steadfast and adapt its lending toolkits to changing global conditions to serve its G20 vulnerable membership better,” Mr Addison advocated.
Speaking on this issue at a press briefing on Thursday, Kristalina Goergieva, Managing Director, IMF, said: “The Common Framework has been slow to deliver to countries that turn to it for support.”
She noted, however, that: “We see an encouraging sign that the time taken to reach an agreement among creditors is short with every step.”
She pointed out that the process took varying durations, with Chad’s creditors taking 11 months to provide the necessary financial assurances to the Fund, followed by nine months for Zambia, six months for Sri Lanka, and five months for Ghana.
The Managing Director of the IMF elaborated that the complexity of creditors and the unique arrangements in each case made debt restructuring an arduous task since it necessitated unanimous agreement from all creditors.
She suggested adopting a case-specific approach to identify creditors and establish a Creditors’ Committee, with the IMF and World Bank outlining the key parameters that require agreement.
“This is the way that today, debt restructuring is delivered, ” Goergieva said, adding that “my plea is, pressure for speed and efficiency, but don’t throw the towel on the Common Framework, because if we lose it, then we’re back in a much less predictable environment.”
Numerous African economies find themselves confronted by severe debt issues, accentuated by the growing demands for social and infrastructure investments. These challenges are exacerbated by the ramifications of the COVID-19 pandemic, the conflict in Ukraine, tightening global financial conditions, and climate-related disasters.
In light of these circumstances, it has become imperative for these nations to regain control over their debt situations and foster inclusive, sustainable growth across the continent. Achieving these goals hinges on effective debt management, particularly concerning external creditors.