The International Monetary Fund (IMF) has strongly supported a call by the African Development Bank Group (AfDB) urging countries in Africa to stop borrowing loans backed by their natural resources. 

This sentiment was voiced when IMF MD Kristalina Georgieva met with the AfDB group president Dr Akinwumi Adesina in Abidjan, Côte d’Ivoire on October 5. It is the first time an IMF head has visited the AfDB headquarters since its establishment in 1964. 

“The natural resource-backed loans are non-transparent, expensive and make debt resolution difficult,” Adesina said, warning that if the trend continues, “it will be a disaster for Africa.” 

Georgieva said the IMF’s senior management team would carry out a thorough assessment of the situation.  

“We will come with a strong voice to tell countries not to create avenues for predatory and enslaving loans,” she said. 

Georgieva added that the issue would also be discussed at the Global Sovereign Debt Roundtable comprised of bilateral creditors, private creditors and borrowing countries. The roundtable is co-chaired by the IMF, the World Bank and the presidency of the G20. The African Union (AU) joined the G20 in September as a permanent member.    

Georgieva will soon travel to Marrakech, Morocco, for the World Bank Group and IMF yearly meetings, which were last held in Africa 50 years ago. 

She said she was visiting Africa at a time when the continent holds much promise for more dynamic growth in the world. 

“We often focus on the challenges that the continent is facing because it is here the impact of climate change is much more severe, where macro-economic and financial instability and debt are amplified.  

“We want to focus on opportunities in Africa for the simple fact that the capital is in the North and a young population is in the South, primarily here in Africa. Unless we build a bridge for capital to flow to where it is needed most, it could lead to a bigger problem,” Georgieva said. 

Adesina commended efforts by both Georgieva and US Treasury Secretary Janet Yellen at the height of the Covid-19 pandemic in 2021 to shore up the global economy by allocating $650-billion in special drawing rights (SDRs). 

Africa, with a population of more than 1.2-billion, received about $33-billion of SDRs, representing only 5% of the total allocation, the smallest portion among the different regions of the world. 

The AfDB said it aims to encourage conversations and develop models that will allow SDRs to be rechannelled through multilateral development banks (MDBs), which can leverage such resources at three to four times their original values.  

Adesina acknowledged the IMF for working with the AfDB’s team on an initiative that could allow SDRs to be channelled through MDBs. 

“Together with the Inter-American Development Bank, we developed a model that meets the IMF’s reserve asset status. If you channel $5-billion through the AfDB, we will use our leveraging power and that could easily become $20-billion of new financing for Africa,” said Adesina. 

He said the initiative would provide much-needed support to countries in Africa where post-pandemic debt remains a big challenge.  

“It’s more serious for low-income countries who constitute the AfDB’s concessional lending window, the African Development Fund. They are also the most vulnerable in the world to climate change,” Adesina said. 

Georgieva, who has publicly supported the AfDB’s initiative on SDRs, said the two institutions will continue to work together to find ways for SDRs to be deployed as hybrid capital. 

“I’m on record supporting the AfDB’s effort and, if this succeeds, there will be a significant expansion of financial capacity for countries even beyond our years in office,” she said. 

The AfDB’s SDR proposal is supported by African leaders as well as UN Secretary General António Guterres. 

Georgieva also acknowledge the AfDB’s initiative, in conjunction with the AU, to establish an African Financial Safety Mechanism to cushion the continent against exogenous shocks such as the impact of Covid-19. 

“Africa is the only region in the world that does not have a safety net against shocks. Europe has it. Asia has it. America has it. The Middle East has it,” Adesina said. 

The AU endorsed the AfDB’s proposal for the mechanism during its summit in February 2022.