The International Monetary Fund (IMF) on Tuesday rejected Mozambique's request that the debt incurred by issuing specific bonds to countries in military conflict should not count towards debt ratios.
According to the director of the African department of the IMF, quoted by Lusa, "if the instrument creates debt and risk, it has to be treated as such, and not to be seen that way is to try to cover debt and not face reality." Abebe Aemro Selassie was responding to a question posed by the Minister of Finance, Adriano Maleiane, at the fourth African Resilience Forum during the panel "Security, Economic Growth and Investment Nexus: Solutions to Mitigate Vulnerability and Fragility".
In addition, the IMF representative for Africa said that aid includes finding "other forms of financing, grants and more types of concessional loans," while the advantages and disadvantages of this instrument and alternative forms of financing should be analyzed.
The African bureau director argued, in response to a question about the flexibility of the deficit limit that countries can have in times of pandemic, that "the IMF does not decide the level of the deficit, it is the governments, what we explain is what are the consequences for each country when the budget deficit is high"
Abebe Aemro Selassie, Director of the IMF African Department
At stake is a financing instrument that the African Development Bank (ADB) is preparing, which involves issuing debt specifically to countries affected by conflicts, such as Mozambique, so that they can finance themselves to re-launch their economies, particularly in the most affected regions.
By financing themselves through this instrument, which will have lower than normal interest rates and longer repayment terms, countries will increase their debt, compromising the Debt Sustainability Assessment (DSA).
This analysis comprises five indicators (Present Value of Debt to GDP, Exports, Revenues, Debt Service to Exports, and Debt Service to Revenues) to define whether a country's debt is sustainable, i.e. whether the government can honor its commitments, not only to commercial creditors, but also to multilateral institutions such as the IMF or the World Bank.
In his speech, the director of the African department argued, in response to a question about the flexibility of the deficit limit that countries can have in times of pandemic, that "the IMF does not decide the level of the deficit, it is the governments, what we explain is what are the consequences for each country when the budget deficit is high."
For Selassie, "the first focus of policy priorities in 2020 and 2021 is to try to overcome the pandemic, which includes larger deficits to support the most vulnerable people and businesses."
The dialogue between Adriano Maleiane and Abebe Selassie came just hours after the president of the African Development Bank (AfDB) said that the bank was creating a new financial instrument to facilitate access to international markets.
"We are creating a security investment bond index, which will allow us to mobilize capital market resources at low interest rates with four main objectives: to strengthen the security architecture, to rebuild infrastructure projects, to recreate social infrastructure such as water, education, and schools, and finally to ensure that throughout the continent there are good protection and defense systems in strategic investment zones," said Akinwumi Adesina, after exemplifying that Mozambique was one of the countries affected by terrorism.