IMF wants COVID-19 debt relief initiative extended
Kampala, Uganda | THE INDEPENDENT | The International Monetary Fund, the IMF, proposes that multilateral lenders extend the Debt Service Suspension Initiative until the end of 2021, as most of the affected countries will not recover by the start of the year. next year.
COVID-19 has taken a heavy toll on the world’s poorest countries, triggering a recession that could push more than 100 million people into extreme poverty. Earlier this year, the World Bank and the IMF urged the wealthiest group of countries, the G20, to establish the Debt Service Suspension Initiative, or DSSI, as the COVID-19 pandemic began to take hold. hit the poorest countries in the world.
The Initiative aims to help countries focus their resources on fighting the pandemic and safeguarding the lives and livelihoods of millions of the most vulnerable people. Since entering into force on May 1, 2020, the initiative has provided around $ 5 billion in aid to more than 44 eligible countries, out of 73 eligible. The suspension period, which was originally scheduled to end on December 31, 2020, has been extended until March 2021.
Under the current terms of the initiative, Uganda will save up to $ 91 million while Burundi will save $ 4.5 million and Kenya will save $ 630 million. Rwanda and Tanzania will save USD 138 million and USD 13.2 million respectively. According to the World Bank ranking, Uganda and Tanzania are considered to be at low risk of debt distress, while Kenya is at high risk and Rwanda at moderate risk. High-risk countries are those whose debt burden represents 70% or more of their GDP.
IMF Senior Economist Izabela KARPOWICZ said in an online discussion titled “The Loans Game: Making Debt Work” that relief has helped many countries control the rate at which their debt is growing.
Recipient countries also pledged to reduce their nonconcessional borrowing, arguing that these loans, while quick, are more expensive in the long run. Poor countries are encouraged to increase domestic revenue mobilization (DRM) and reduce overdependence on external aid.
Ugandan Debt Network Deputy Executive Director Julius Kapwepwe expressed concern that increasing local resource mobilization beyond pre-Covid 19 levels could worsen the economic situation of households and companies.
Leaders have also been responsible for always explaining how the loans countries get are applied and the results, or else, the loans are used for things other than what they were officially acquired, which affects the value of the loan. to the economy. Kapwepwe cited the 1999 Mater Fishing Plan for which the government of the region, including Uganda, borrowed money from the African Development Bank to boost fish exports to Europe. On the contrary, he says, countries import fish from China.
Global lenders like the IMF and the World Bank are also partly to blame for imposing policies that negatively impact poor economies. Alvin Mosioma, executive director of Tax Justice Network-Africa, says African countries have been forced to focus on indirect taxes like value added tax because they are easy to collect. He says such taxes are more effective in formal economies unlike in Africa where the informal sector dominates the economies.
The efforts of African countries to raise local revenue are also affected by poor tax regimes, which allow tax evasion and evasion, but also capital flight.
According to the World Bank, Africa loses between 50 and 90 billion dollars in tax evasion and tax evasion, in particular by multinationals, which take advantage of loopholes in local laws.
The leaders are challenged to harmonize the laws of the countries to jointly fight against this, but this is also affected by political motives.
Leonard Wanyama, coordinator, East African Tax and Governance Network, says that when crafting reforms and development plans, politicians should not be allowed to influence processes, as political promises usually create heavier burdens.
The discussion was convened by the regional tax and trade rights group, SEATINI, under the theme: Prudent Debt Management in the East African Community (EAC) and the Southern African Development Community (SADC).