African Union proposes suspension for up to two years for payment of debts

The President of the African Union and Head of State of South Africa, Cyril Ramaphosa, defended the suspension of debt payments for up to two years, and not just until December, as proposed by the World Bank and the International Monetary Fund. The announcement came in a virtual meeting with leaders of the Southern African Development Community (SADC).

“Although the World Bank and the International Monetary Fund supported a nine-month suspension of debt payments, we believe, due to the extent of the expected damage, that we will need a two-year suspension,” he said.

During the meeting, the South African president recalled the financial measures adopted in recent weeks and once again defended the states’ permission to access the IMF‘s Special Drawing Rights (SDRs), which is the Fund’s own financial reserves.

“We advocate, among other measures, allocating more SDRs to Africa to provide much-needed liquidity to central banks, the business sector, and small and medium-sized enterprises,” said Ramaphosa, according to the statement posted on the South Presidency’s website. Africa, emphasizing that, during the virtual meetings of the IMF and World Bank Annual Meetings, the African Union “argued for the suspension of all interest payments on multilateral and bilateral debt, which would give African governments the necessary budgetary space to devote all resources to response and recovery “.

Ramaphosa’s statements emerge from the public discussion that has existed in the financial markets about how governments can honor commitments and, at the same time, invest what is necessary to contain the Covid-19 pandemic.

The operationalization of the suspension of payments is, therefore, one of the main logistical difficulties, since developing countries have different types of debt. The African Union and the United Nations Economic Commission for Africa (UNECA), among other institutions, are working on developing a plan to exchange countries’ sovereign debt for new concessional bonds that can prevent the funds needed to combat Covid-19 used to pay creditors.

This financial mechanism would be guaranteed by a multilateral bank with a triple-A rating, the highest, or by a central bank, which would convert the current debt into securities with a longer maturity, benefiting from five years of payment and coupon exemption (lower interest payments), according to UNECA.

With information from the LUSA Agency