In a meeting held in Senegal on 2nd December, 2019 six West African heads of state stood up to the IMF at a conference it organised, arguing that development will come to a standstill if the Bretton Woods institution does not change their approach.
The IMF’s response was that borrowing will only make sense if it is done in a reasonable way to finance projects that stimulate productivity and improve living conditions, effectively suggesting that some African government at high debt risk, finance projects that do not stimulate productivity and may not be reasonable. The Managing Director of the IMF then describe several countries in high debt risk categories, of which Sierra Leone was among.
However, Kristalina Georgieva, the IMF’s new Managing Director, played ball to a certain extent. She acknowledged the need to take into account climate and security shocks and think about innovative ways to cushion them. “At the IMF, we’re not good in these areas, but I promise you that we’ll work to ensure that these shocks are incorporated into our macroeconomic analysis.” She also admitted that “[the IMF] has failed to convey the message that Africa has a wealth of investment opportunities, […] we must dispel the perception of risk.”
But the Bretton Woods institution can’t help having certain reflexes, and Georgieva went on to remind leaders that “borrowing power in the region isn’t unlimited”, and “borrowing makes sense if it’s done in a reasonable way, if it finances projects that stimulate productivity and improve living conditions”.
She ruled out the possibility of using debt as a way to achieve sustainable development goals “through borrowing”, advising countries to better oversee debt-financed projects and to strengthen public debt management.
Sub-Saharan Africa’s public debt level had improved from 100% of the region’s GDP in 2000 to 35% in the years following 2010, as a result of debt cancellations. It increased on average to 55% of GDP in 2016, mainly due to falling oil and mineral prices and significant infrastructure needs.
According to the IMF, seven countries are over-indebted (Eritrea, Chad, Gambia, Mozambique, São Tomé e Principe, Congo-Brazzaville, South Sudan and Zimbabwe) and nine are at high risk of becoming over-indebted (Burundi, Cabo Verde, Cameroon, Chad, Ethiopia, Ghana, Central African Republic, Sierra Leone and Zambia).
A small revolution unfolded on 2 December in Dakar during the Sustainable Development, Sustainable Debt: ‘Finding the Right Balance’ conference organised by the Republic of Senegal, the International Monetary Fund (IMF), UN and French think tank ‘Le Cercle des Economistes’.
In a unanimous voice, six West African heads of state aired their grievances about the rules multilateral institutions, above all the IMF, impose on them regarding budget deficits and public debt.
“It’s true that our debt represents 55% of our GDP, but the global average is 225%,” said MackySall, the Senegalese President, pointing out the irony. “Our debt risk isn’t any higher than that of other regions in the world. Stereotypes that raise our interest rates are holding us back. Is it fair to apply the same criteria devised for countries that have finished accumulating capital to our countries, which are starting from scratch?” All six countries spoke as one: Niger, Benin, Togo, Burkina Faso, Côte d’Ivoire and Senegal.
Other leaders added to Sall’s criticism.
For Ivorian President Alassane Ouattara: “Our deficits need to be assessed in a more flexible way since our investments don’t produce an immediate impact.”
Niger’s President Mahamadou Issoufou broadened the debate to include the role of the state in creating an enabling business environment, particularly given the security challenges faced by his country, “which spends 20% of its budget on security because development requires it. These vital expenses should be excluded from the calculation of our deficit.”
The leaders turned the conference into a platform to air their discontent, with Togolese President Faure Gnassingbé concluding: “Our problems aren’t going to be solved by applying the same solutions from the past. The IMF and other institutions can’t ask us to make an effort and then just feed us promises.”
Burkina Faso’s President Roch Marc Christian Kaboré also voiced his frustration: “Official development assistance commitments aren’t being upheld. We can’t tolerate this anymore because our security spending is forcing us to deprive our people of necessities.”
Benin’s President Patrice Talon went into the most detail: “Multilateral institutions aren’t helping us to improve our standing among investors as regards our risk level. The OECD has placed us at level 6 out of a maximum of 7 and the risk premium we have to pay is 12 basis points, when we should be at 5 points now that there’s too much money in circulation and rates are negative. We can’t borrow for more than 15 years, which isn’t enough time to amortise a hydroelectric dam.”
In a scathing tone, he lambasted “the IMF [which] requires that our budget deficit not exceed 3% of our GDP, even though we have so much development ahead of us. We could exceed this threshold and still maintain a sustainable debt level, but the IMF refuses to review the quality of our debt. It’s time to change your analysis!”
Washington Consensus vs Dakar Consensus
MackySall brought the conference to a close by detailing seven “areas for common ground” that can be leveraged to find the right balance between development needs and debt sustainability, including:
• better harnessing of domestic resources (savings and taxation);
• improving public finance governance and the business environment;
• taking environmental and security challenges into account ;
• accelerating investment;
• increasing the value added of African products through better integration into value chains;
• tackling the exaggerated perception of risk in Africa;
• Maintaining cooperation between African countries, bilateral and multilateral organisations and the private sector to ensure that
“Africa becomes one of the driving forces” the global economy needs.
Jean-HervéLorenzi, President and Chairman of Le Cercle des Economistes, estimated that for this to happen the $75bn that makes its way to the continent each year would need to be doubled within two years, and remain at that level for 15 years.
MackySall baptised this joint economic policy declaration “the Dakar Consensus”, as opposed to the famous “Washington Consensus”, the financial orthodoxy of which has been the source of so much suffering for Africans