Financing Africa’s Economic recovery – evolving role of International Financial Institutions
African economies have felt the brunt of the coronavirus that has decimated the progress made to their already fragile economies. The International Monetary Fund estimates that output in Sub-Saharan Africa contracted by 2.6 percent in 2020, compared to growth of 3.2 percent in 2019. Africa’s journey to economic recovery and transformation will require support from International Financial Institutions and other key stakeholders. The role of International Financial Institutions in Africa’s development has evolved over the years with the increase in economic integration and globalization.
African nations have greatly transformed the administration of their economies with notable improvement in key areas such as governance, monetary and fiscal policies, infrastructure development and poverty reduction which has translated to a conducive environment to attract international funding.
Previously, International Financial Institutions were the only source of financial assistance available to nations for development initiatives. This is no longer the case with the increase in availability of private international finance and foreign direct investment for economic development. Today, China has emerged as one of the top investors in Africa, providing both financial assistance through bilateral aid in terms of grants, interest-free loans and technical assistance in the implementation of developmental projects.
International Financial Institutions are now having to compete with emerging sources of financial assistance available to African nations. International Financial Institutions need to carve out their niche by outlining specific areas of financial support to nations. The current areas of financial support are in been poverty alleviation, economic growth and protection of the environment.
International Financial Institutions are central to the functioning of the global financial system through their provision of policy advice, financing for development, global public goods, financial safety nets and rules-based framework for international economic activity although their influence in this area is weakening with greater regional and international cooperation and economic integration amongst African nations.
Globally, nations are battling the adverse impact of the coronavirus. International Financial Institutions are mobilizing unprecedented levels of financial resources to support countries responding to the health and economic consequences of the COVID-19 pandemic. Some International Financial Institutions have proposed a debt standstill for low-income countries, during which those countries could suspend debt service payments and instead devote their funds to the exigencies of the pandemic.
Middle-income African nations are in stiff competition with other nations for access to funding from International Financial Institutions. Africa’s journey to economic recovery will hinge on a delicate balance of self-funding and international aid.