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IMF Wants COVID-19 Debt Relief Initiative Extended

COVID-19 has dealt a major blow to the world’s poorest countries, causing a recession that could push more than 100 million people into extreme poverty. Earlier this year, the World Bank and the IMF urged the group of the richest countries, the G20, to establish the Debt Service Suspension Initiative, or DSSI, as the COVID-19 pandemic started to hit poorer countries worldwide.

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The International Monetary Fund, IMF, is proposing that the multi-lateral lenders extend the Debt Service Suspension Initiative to the end of 2021 because most of the countries burdened will not recover by early next year.

COVID-19 has dealt a major blow to the world’s poorest countries, causing a recession that could push more than 100 million people into extreme poverty. Earlier this year, the World Bank and the IMF urged the group of the richest countries, the G20, to establish the Debt Service Suspension Initiative, or DSSI, as the COVID-19 pandemic started to hit poorer countries worldwide.

The Initiative aims at helping countries concentrate their resources on fighting the pandemic and safeguarding the lives and livelihoods of millions of the most vulnerable people. Since it took effect on May 1, 2020, the initiative has delivered about USD 5 billion in relief to more than 44 eligible countries, out of the 73 eligible ones. The suspension period, originally set to end on December 31, 2020 but was extended to March 2021.

Under the current terms of the initiative, Uganda will save up to USD 91 million while Burundi will save USD 4.5 million and Kenya USD 630 million. Rwanda and Tanzania will save USD 138 million and 13.2 million respectively. According to the World Bank ranking, Uganda and Tanzania are considered low-risk to debt distress, while Kenya is a high risk, and Rwanda moderate. High-risk countries are those whose debt burden is 70 per cent or more of their GDP.  

The IMF Senior Economist Izabela KARPOWICZ, told an online discussion dubbed ‘The Game of Loans: Make Debt Work that the relief has helped many countries control the rate at which their debt burdens were growing.

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The benefitting countries were also made to commit to reducing their non-concessional borrowing, saying such loans, though quick, are costlier in the long run. The poor countries are being encouraged to increase domestic revenue mobilization (DRM) and curb over-reliance on external aid.

The Deputy Executive Director at the Uganda Debt Network, Julius Kapwepwe expressed worry that increasing local resource mobilization beyond the pre-covid 19 levels, could worsen the economic situation of households and enterprises.

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Leaders were also tasked to always explain how the loans the countries get are applied and the outcomes, or else, loans are used for things other than those for which they were officially acquired, and this affects the value of the loan to the economy.  Kapwepwe cited the 1999 Fisheries Mater Plan for which government in the region including Uganda borrowed money from the African Development Bank to boost fish exports to Europe. On the contrary, he says, the countries are importing fish from China.

The global lenders like the IMF and the World Bank are also partly to blame for imposing policies that have negative consequences on the poor economies. Alvin Mosioma, the Executive Director of Tax Justice Network-Africa, says African countries have been made to concentrate 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.

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Efforts to raise local revenues by African countries are also affected by the poor tax regimes, that allow tax avoidance and evasions, but also capital flight.

According to the World Bank, Africa loses between USD 50 billion and USD 90 billion in tax evasion and tax avoidance especially by multinational, which take advantage of the loopholes in the local laws.

Leaders are challenged to harmonized the laws of the countries to jointly fight this, but this is also affected by political motives.

Leonard Wanyama, the coordinator, East African Tax and Governance Network, says in making reforms and development plans, politicians should not be allowed to influence the processes, because the political promises usually create bigger burdens.

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The discussion was called 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).

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