COVID-19 Africa Watch talks to Dr. Youssef Boutros-Ghali, former Finance Minister of Egypt and former chairman of the IMF’s International Monetary and Financial Committee, about the economic impact of the pandemic, the policy response, SDRs, and more.

Key Takeaways

The following are a few of the main takeaways from COVID-19 Africa Watch’s conversation with Dr. Youssef Boutros-Ghali, the former Finance Minister of the Arab Republic of Egypt:

• African countries unfortunately have little flexibility in terms of their macroeconomic policy responses to the pandemic. On the fiscal side, the effort made to date by African countries barely exceeds 3 percent of GDP because there is little fiscal space for additional spending. Monetary policy is not a very effective lever either, because the transmission mechanisms of monetary policy (mainly through the banking system) are fairly weak in most African countries.
• The pandemic has weakened African countries’ negotiating power vis-à-vis the rest of the world, including China, in part because it has weakened their ability to access the international financial market. The collapse in commodity prices has further compounded these effects, leaving African countries in a precarious negotiating position on the international stage.
• G20 countries have agreed to the debt service suspension initiative (DSSI) for 73 indebted countries, but more help is needed. In order to bolster sovereign debt sustainability, African countries should do what the European Union has been working on since the pandemic first hit: mutualize the problem. The African Union cannot do this on its own, because it is a political gathering, not a financial gathering. The African Development Bank, the European Investment Bank, the EBRD, the IMF, the World Bank, and other financial institutions need to step in.
• IMF shareholders, including the United States, should agree to a reallocation of the IMF’s special drawing rights (SDRs) which could be provided to regional development organizations such as the African Development Bank. The African Development Bank should then take the lead in providing resources almost on a grant basis to African countries that are unable to address the economic fallout of the pandemic.

The interview was conducted by Carole Biau, Director of Global Market Development at the Milken Institute.