Africans want the global financial system overhauled

The biggest issue on every African finance ministers’ mind during the Spring Meetings last week was the risk of a debt crisis in the region. Even if you were one of the few sub-Saharan African countries not on the official distressed debt or high risk list, you would have to be concerned because there’s a real risk of contagion, certainly when it comes to perception.

I moderated the Atlantic Council event where Ghana’s Ofori-Atta pulled few punches about the ineffectiveness of the World Bank and other multilaterals in this critical moment. He said the system was failing to solve problems of eliminating poverty and boosting shared prosperity “at the scale and speed that is required.”

Speed and scale were the refrains heard throughout the Spring Meetings last week, particularly when it came to dealing with Africa’s challenges. IMF’s Africa director Abebe Selassie, who told me he “remains optimistic” about sub-Saharan Africa’s resilience, did not sugarcoat the difficult choices some African governments will have to make as debt payments are weighed up against both social and physical infrastructure necessary for development. He also acknowledged that more needed to be done to overcome the funding squeeze his report highlighted.

“We typically rely on our richer members to provide us with subsidies and resources that we can then send on to the region but that’s been constrained,” Selassie told me in an interview. “With all the other sources of financing dried up, it’s all the more important that this is available for countries to avoid a grim outlook.”

Which brings us back to the need for reforms. Much of the reform that has been proposed so far hasn’t been focused on real development priorities such as debt system reform.

One of the more notable features of the current system, as the chart above shows, is how little influence is wielded by the countries that need the support the most. This is what Ofori Atta meant with his call for a “seat at the table.” Perhaps it’s unsurprising that wealthy countries who foot the bill make the significant decisions in how the system works. But, in an increasingly multipolar world with the rise of other financial partners including China, Turkey, and the Gulf nations among others, African governments who are trying to develop their countries will be less likely to accept the status quo.

Major reforms will be slow and steady and many of the Bretton Woods institutions’ shareholders will be in no hurry to overhaul the current system, explained Amin Mohseni-Cheraghlou, a macroeconomist at Atlantic Council. “We can expect debt forgiveness and restructuring to happen in some shape and form, especially for low-income economies and those with strategic importance in the continent,” said Mohseni-Cheraghlou.  “However, having ‘a seat at the table’ is not going to happen within the next few years because it goes to the core of the governance structure of these Bretton Woods institutions unless major changes in that structure take place, which is very unlikely.”

One of the reasons there have been calls for the reform of the Bretton Woods’ institutions is the growing influence of China, whose own institutions have become major lenders to developing countries. At the same time, the U.S. is seeking deeper engagement with the continent.

“Africa should not take sides with one of these blocs,” Mze Abdou Mohamed Chanfiou, the finance minister of Comoros, which is also the current chair of the African Union, told a press conference. “Africa works with both of them; the US and China. Africa doesn’t want to be a continent in the middle of this decoupling.”