Transcript of a statement by the Honourable Mia Amor Mottley, QC, MP
Prime Minister of Barbados and Chair of the Joint World Bank and International Monetary Fund Development Committee
At the 53rd Session of the Conference of African Ministers of Finance, Planning and Economic Development
Addis Ababa (hybrid)
March 22, 2021
Thank you very much.
Good morning to everyone.
Excellency Mohamed Benchaaboun, Minister of Economy, Finance and Administrative Reform, Morocco and Chair of the outgoing Bureau;
Excellency, and my brother, Ken Ofori-Atta, Minister of Finance, Ghana and it is so good to see you recovered from COVID;
Baroness Minouche Shafik, Director of the London School of Economics, my alma mater, and former Deputy Governor of the Bank of England;
Vera Songwe, UN Under-Secretary-General and Executive Secretary of the ECA and of course, my sister;
Excellency Abiy Ahmed, Prime Minister of the Federal Democratic Republic of Ethiopia;
All ministers present;
Members of the diplomatic community in Addis Ababa;
Distinguished guests, ladies and gentlemen, or should I say my brothers and sisters.
We meet again across the annals of history for whenever the beacons have been lit, we’ve always answered each other’s call to do battle with a common enemy side by side. We met one hundred years ago in Northern Africa at the start of the long war for political independence from the yolk of empire. We met later in protracted battles for economic independence. We met in southern Africa, to vanquish the last vestiges of minority rule. Ours, my friends, is an ancient bond of blood and soil steeped in history and forged in struggle.
And we meet regrettably again this morning on the battlefield of COVID.
Our health statistics are relatively good, but our economies are devastated.
Our government’s relative success in treating the global pandemics’ health side has served to hide the true economic devastation of COVID from the world.
Three things have driven that devastation.
First, our colonial past has left us both highly dependent on trade, travel and foreign direct investment. And so our two regions have been two of the hardest hit. The facts are there for all to see.
Second, the world’s few countries with reserve currencies were able to deploy seven trillion dollars of quantitative easing, as you heard from Vera just now, allowing interest rates to remain near zero while they engaged in massive fiscal stimulus to offset the implosion of their private economy.
Our countries could not do that to save our private economies.
So while the advanced economies spent 8% of GDP to boost their economies, developing countries could only struggle to spend 1% or 2% of GDP.
Third, our public and private financing flows have either disappeared or been too little too late.
The inadequacy of the DSSI is something for us to reflect upon. This has been the centerpiece of the international community’s response to COVID. This debt service suspension initiative really needs to be examined by us.
While the advanced economies have added near $11 trillion of new debt, the relief that the 72 low-income countries eligible for relief under the Debt Service Suspension Initiative will be in the vicinity of $11 billion, 1,000 times smaller than the $11 trillion of new debt to the advanced economies.
And while we welcome it, 80% of countries eligible for the DSSI will receive relief worth less than 1% of their GDP – 60%, less than 0.5%.
Let me be very clear, this Debt Service Suspension Initiative is welcome. But to spend much time debating whether we should extend it by a few months will not address the crisis that we face today. And it will not save us from what is coming next my brothers and sisters. The ingredients are now in place, regrettably, for a debilitating emerging market debt crisis, the kind that plunge Latin America into a lost decade when these ingredients were last in place.
Because of the cost of the pandemic and costs relating to the climate crisis like the outbreak of locusts across several East African countries in 2019, the debt as a percentage of GDP in over half of our countries has jumped from high before COVID, to the edge of sustainability now today.
The credit rating agencies are jittery, as we would have expected them to be. They have already put several African countries on credit watch for participation in the DSSI, raising their buy – their cost of capital.
Over the past decade, the amount of government or government-guaranteed debt in Africa to private creditors has grown from negligible proportions to 43%.
This debt is primarily in US dollars and is set on the basis of US interest rates.
In Latin America in the 1980s, there had also been a rapid rise in US dollar-denominated debt held by private creditors. What triggered the crisis on August 12th, 1982, was the strengthening of the US dollar amid the 1981 tax cut stimulus.
Unless my brothers and sisters, we act fast, proportionately and comprehensively, a strengthening US dollar and rising US interest rates can be the trigger that turns this health crisis into a debt crisis.
That is the problem that the world is facing; the DSSI does not solve it. It requires a greater, more systemic effort; one that goes beyond the poorest countries to those countries shut out from the international capital markets, one that goes beyond government debt and beyond China.
I seek your support this morning for a recycling of the $500bn of SDRs that better matches the problems and the problems we face.
Additional fast-disbursing resources are necessary.
Firstly, to scale up the resource transfer needed to address COVID and climate change, we call upon the rich countries to pledge half of their new and unused, Special Drawing Rights to recapitalize development banks like the African Development Bank, the Inter-American Development Bank and the World Bank, the Asian Development Bank.
They must use this capital to leverage more long-term lending to those heavily impacted by COVID and by the climate crisis to support green, yes, resilient, yes, and inclusive development, yes. The current resources available to the regional development banks are not sized for the economy-stopping pandemic. They have not been sized to deal with the climate crisis and how it is impacting us disproportionately, particularly those of us between the Tropics of Cancer and Capricorn.
But it is not just the level of lending that matters, it is also the speed with which it is lent.
Our needs are immediate. And the development banks have been well-meaning, yes they have been, but they have been slow with lending tied up in efforts to draw up conditionalities and with the staff blaming their boards in many instances. We’ve experienced this in the region, our region.
We are in the middle of a pandemic. We should not need to ask, but countries that have suffered double-digit declines in GDP last year need genuinely fast-disbursing, long-term budget support.
The development banks and their boards must commit to the timing of their disbursements.
One fast way to provide relief while preserving the preferred creditor status is for the IFIs, the multilateral development banks and the regional development banks to adopt natural disaster and now, pandemic clauses in their lending and to encourage others to do so as well. In the Barbados version of these clauses, and ours was regrettably only natural disaster, we wrote them into all of our domestic and international debt after our debt restructuring in 2081 and 2019, such that once it is independently verified that there has been a natural disaster, there is an immediate suspension of debt service for two years, with the payments added on at the end of the existing term. This frees up close to 10% of GDP in Barbados’ case.
Debt reduction is a vital corollary of additional resources.
But more lending on its own is problematic given higher levels of debt.
The new lending by the regional development banks must as much as possible involve partnerships with the private sector and tapping into private sector savings so that the investment does not sit solely on stretched government balance sheets.
But it is only essential that the corollary of any plan for new resources is a plan for debt reduction that does not scare the bondholders and at the very least is on the scale of the increase of COVID-related debt.
I want this morning to propose that rich countries pledge the other half of the additional and unused SDRs to developing countries if they use them to buy back their debt denominated in the currencies that make up in the SDRs and by an amount equal to the increase in debt from 2020.
This will yield three benefits. Firstly, there would potentially be a significant debt reduction that will likely forestall a drop in credit ratings. Appropriately recycled, the new SDR allocation is formidable. The total external debt of African countries held by private creditors, for example, in 2019 was just 40% of the new allocation.
Secondly, if developing countries, all developing countries, use their SDRs to offer to buy back their debt at or just below par, this offer by itself without any resources being spent would increase the liquidity in debt. Investors would know at any time there’s a buyer of their bonds. As Vera Songwe has so well articulated, again this morning, illiquidity is a significant cause of our high debt costs, as unlike in advanced countries, there are no ready buyers of our small debt issues. As a result, a vicious cycle ensues where high debt servicing costs undermine debt sustainability. We will look on as we wait to see what, Ken, you are able to attract as you go to the market in under two weeks.
Thirdly, all of the countries whose currencies are in SDRs are currently engaged in substantial quantitative easing as I’ve said: the United States of America, China, the Euro area, Japan, the United Kingdom, all to a combined $7 trillion in 2020 alone and into early 2021. Swapping around $60bn of the new SDR allocation for US dollars to buy back US dollar-denominated bonds held by US investors has much economic equivalence, dollar-for-dollar with quantitative easing programs. If there were any concerns about wider effects, and I do not see why there would be, most of these concerns could be addressed through a modest reduction of existing quantitative easing programs.
This is not the place for detailed blueprints. It is the place, however, to ask for your support for scaling up the response to COVID, and for more comprehensive, faster, support that reaches those countries most impacted by COVID, most susceptible to an emerging debt crisis and to climate crisis-related costs. The bond buybacks must reach vulnerable middle-income countries and private creditors as well as low-income countries.
And yes, we need a vaccine clearinghouse for we are another vital battle together that obtaining vaccines for all. We tell the world that vaccinating part of the people or part of the world will not work and will provide fertile ground for vaccine-resistant variances. But it is falling, my friends, on deaf ears. In times of war, vital market subject to speculation, hoarding and price gouging are rationed and not left to market forces. Market power is at play here, and I tell you, because we are in the middle of it. Some large countries have purchased five times or more vaccines and they need using complex, opaque option arrangements that make it hard for vaccine producers to plan and to sell further production. So much for that transparency. Small buyers do not even get a look in.
Some long-term solutions have been suggested that are worth serious consideration. One step we can also take is to reach a clearing arrangement for access orders of vaccines. We should require written “clearing” agreements from those who have ordered more than they need. Once those vaccinated exceed the herd immunity threshold, they would agree to retain some more modest surplus and ask the producers to produce and deliver the excess at cost to developing countries. And even then, we are at the back end of the queue. Those excess vaccines should be over and above the amounts agreed to under COVAX, which only deals with 20% of our populations. There must be early intervention. The doctrine of necessity is also at play and so if there is no international commitment to provide equitable and affordable vaccines for all, IP restrictions on growing production will become more of an issue. And this is not a straightforward issue for any use of any waivers ought to be limited to the issue of vaccines for this crisis.
Before COVID, as you have already said this morning my friends, Africa was on the march. We had looked forward to CARICOM-Africa Union Summit last year. Alas, it was not to be. But if we can get back to the journey, the 21st century, we truly believe will be the African century. Africa rising will impact not just the continent, its people, all those of African origin, but, yes, the entire world. COVID has stopped us in our tracks, all of us. But my brothers and sisters, I know the recent journey has been relentless and exhausting, but we have reached a critical point in this twin battle of finance and vaccines. We need a more comprehensive response to the deepest crisis of the last 100 years. One that brings additional resources to those most heavily affected and critically also reduces our level of debt. We cannot leave vaccinating the world to unchecked market forces. We need a global approach and global leadership to vaccination, rooted in strategic moral imperatives. These are not nice to haves, these are the imperatives that are morally rooted. There is no turning back and we must reform the lane, redouble our effort and press forward.
I would like this morning to propose that we need to, at all costs, come together to work to promote our common interests given that our advocacy in our individual regions is not gaining the appreciation or the traction that is needed to allow us to be seen and heard as low-income and middle-income countries. It is time that Africa needs to take leadership on these issues for the rest of us globally.
And it is timely. Africa is already in the chair of the Organization of African, Caribbean and Pacific States, one of the largest global bodies of countries previously viewed as colonies. We can use the OACP as a coordinating mechanism.
And we must then create a subcommittee of Ministers of Finance this week, this week yes, supported by a small group of our best technicians so that they may better refine what we must articulate and maintain with laser-like focus. And why is this necessary? We must tell the story, our story that of low-income and middle-income countries whether as small island states largely dependent on tourism and travel or single commodities, or whether as larger middle-income countries who have little or no access to the international capital markets but who nevertheless are facing serious vulnerability to the twin crises of COVID and climate. The true front line of climate, as I said earlier, is not simply those of us in the alliance of small island states, but those of us who lie between the Tropics of Cancer and Capricorn for all of us are already paying the price of the climate crisis, as we have seen as recent as this year with Mozambique.
A climate crisis driven by the behaviour of advanced economies with respect to the increase in greenhouse gases, not by us, but by them. We simply do not have the money, the fiscal space or the policy space needed to build the green, the resilient and the inclusive development of which we speak, especially after this last year of fighting COVID without the critical intervention that is necessary. We don’t and cannot move the needle on these policy issues of access to appropriate concessional funding or the use of appropriate criteria to truly assess our vulnerabilities, multi-dimensional as they are, or the best manner to redistribute the SDRs that will give most of us affected our best chance of survival – not even yet talking about prosperity. And the need, my friends, for global leadership to eradicate this awful inequity of vaccine apartheid. For us, our new wealth must be resilience and regrettably, our new poverty has become a vulnerability.
This subcommittee of Ministers of Finance must request a meeting with G7 countries and the heads of the multilateral institutions to put forward our proposals. We must come to the spring meetings with a simple yet coordinated message.
History has taught us, my brothers and sisters, that it is only when we meet together and rebuild our platform of solidarity will we win the big and defining battles of our time.
When we remain separate and apart, it allows the status quo of “us” and “them”. And you may ask who is us? We are the ones that have been excluded from the corridors of International Decision-Making in the 1940s architecture of the United Nations and Bretton Woods institutions as we were not yet sovereign countries. We are the “us” that are on the front line of the climate crisis between the Tropics of Cancer and Capricorn – looking on and waving our hands to a deafening silence and to inaction on matters that are critical to us, like the Warsaw mechanism on loss and damage that is yet to get off the ground after the Paris agreement. We are the “us” who, in utter frustration, wait and wait and wait on vaccines or we pay astronomical prices to middlemen to access them.
It is instructive that Britain, when it had finished the war, had it been forced to service its war debt immediately as the war ended, Britain would never have had the luxury of rebuilding its country and resuming its development trajectory. They found a creative way to treat to astronomically high debt that was incurred. As I speak to you in Addis Ababa this morning from Bridgetown, neither distance nor time zone must stop “us” from seizing the moment and finding creative solutions as we fight for the development of our people and our countries.
The beacons, my friends, are once again lit. Let ss answer the call and shape our destiny, for we all know that a price will be paid with the costs of adjustment to climate and COVID. The question is how will that price be paid and when will it be paid and by whom? Like with everyone and everything else, we know that the earlier the better. The only issue for “us” is, will we fight this battle alone or will we answer the clarion call of history and come together yet again for the large battles. I choose that we come together.
Thank you and may God bless the deliberations of the African Ministers of Finance at this important juncture of global history. Thank you.