The International Monetary Fund (IMF) has strongly supported a call by the African Development Bank Group urging countries in Africa to stop borrowing loans backed by their natural resources.
The IMF Managing Director Kristalina Georgieva met last week with the President of the African Development Bank Group, Dr Akinwumi Adesina, in Abidjan, Cote D’Ivoire. It is the first time an IMF head has visited the Bank headquarters since its establishment in 1964.
Welcoming Georgieva, Adesina said, “the natural resource-backed loans are non-transparent, expensive and make debt resolution difficult.” He warned that if the trend continues, “it will be a disaster for Africa.”
Georgieva said the Fund’s senior management team will “carry out a thorough assessment. We will come with a strong voice to tell countries not to create avenues for predatory and enslaving loans.”
She said the issue would also be discussed at the Global Sovereign Debt Roundtable comprised of bilateral creditors, private creditors and borrowing countries. The roundtable is co-chaired by the IMF, World Bank and the presidency of the G20. The African Union joined the G20 in September as a permanent member.
The IMF chief said she is visiting Africa at a time when the continent holds much promise for more dynamic growth in the world.
“We often focus on the challenges that the continent is facing because it is here the impact of climate change is much more severe, where macro-economic and financial instability and debt are amplified.”
“But we want to focus on opportunities in Africa for the simple fact that the capital is in the North and a young population is in the South, primarily here in Africa. Unless we build a bridge for capital to flow to where it is needed most, it could lead to a bigger problem.”
According to World Bank review of 30 resource backed loans (RBLs), 13 different creditors were identified to have extended RBLs to African countries. “These can be grouped based on their economic functions or based on their classification as either an official bilateral creditor versus private/commercial creditor.”
Chinese policy banks are the source of 76 per cent ($36bn) of the resource backed loans (RBLs) to Africa, with Eximbank and CDB contributing $17bn and $18bn each.
Besides China, the Republic of Korea has also offered RBLs. In 2011, the Export-Import Bank of Korea (KEXIM) announced that they signed an “Economic Development Cooperation Fund” (EDCF) loan with the DRC government. “Under the agreement, Korea would construct a network of water supply pipelines in the capital of Kinshasa with the condition that Korea would acquire development rights to Musoshi copper mine.”
Some RBLs are designated for specific projects, often large scale. Ghana contracted close to $600mn in a cocoa-backed RBL from China Eximbank for the construction of the Bui Hydropower Project in 2007. A similar big-ticket item was Angola’s Kilamba Kiaxi New Town, a large-scale housing project in Angola, financed with a $2.5bn oil-backed loan from ICBC.
South Sudan’s Nadapal-Torit-Juba Road cost around $169mn and was financed through oil-backed China Eximbank loans.
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