Buy out African bondholders with IMF tool - AfDB Chief

Akinwumi Ayodeji Adesina 3 Dr. Akinwumi Adesina, President of the African Development Bank

Tue, 18 May 2021 Source: bloomberg.com

International Monetary Fund resources should be used to buy out holders of African bonds and avert a crisis as a global push for debt relief runs aground, the head of the continent’s biggest multilateral lender said.

Akinwumi Adesina, president of the African Development Bank, said the Common Framework -- created by the Group of 20 leading economies to get private sector creditors involved in debt workouts alongside public lenders -- is unlikely to be used again in its current state as countries fear ratings downgrades if they apply.

Yet many African nations are in desperate need of debt relief as they’ll struggle to meet huge repayments to investors in the coming years, Adesina said. To get the private sector on board, he proposed buying back foreign bonds with some of the $650 billion of reserve assets known as Special Drawing Rights that the IMF is planning to issue this year.

“Those bullet payments when they become due -- and I don’t think Africa will be in a position to pay them -- will really cause a major, major debt crisis down the line,” Adesina said in an interview with Bloomberg News in Paris. “We need to use some of the SDRs as a way of buying down some of that debt, but also conditionally asking the private sector to join the G-20 Common Framework.”

Adesina’s proposal comes as leaders gather in Paris on Tuesday for a conference hosted by France on the financing of African economies. On Monday, speaking after a separate meeting, French President Emmanuel Macron said he advocates outright debt cancelation for Sudan, which for France would involve wiping out around $5 billion.

Yet such a write-off would be a one-off measure that wouldn’t be repeated for other African countries, France’s Finance Minister Bruno Le Maire said.

“It should remain exceptional as a major political gesture to salute the democratic transition in Sudan and encourage its development,” Le Maire told RFI radio on Tuesday.

Efforts of international lenders have so far focused on suspending debt-servicing costs, which does little to address the size of Africa’s $700 billion debt pile or involve the private sector, which holds more than half of that debt.

The framework is available to 73 poor countries, but only Chad, Ethiopia and Zambia have so far requested it. Moody’s downgraded Ethiopia’s credit rating on Monday and maintained a review for further cuts, saying the protracted deliberations over country’s application to the Common Framework have increased the risk private-sector creditors will incur losses. Fitch Ratings already downgraded Ethiopia in February.

There are also doubts over whether the IMF’s SDR allocation alone can restore the finances of African nations, with Fitch saying in March it would not be enough to solve imbalances.

“The debt of Africa right now is too much, it’s like running up a hill with a backpack of sand,” Adesina said. “This issue is not going to go away unless we find a mechanism to buy down some of that private-sector debt.”

Source: bloomberg.com