As the world seeks to mitigate economic fallout from the COVID-19 global pandemic and its unprecedented disruptions, the United States has, to date, prioritized its domestic challenges, largely abandoning its traditional role as a provider of humanitarian assistance during times of international crisis.
On July 31, the House of Representatives took an important step toward remedying this neglect, and passed legislation in support of the International Monetary Fund (IMF) issuing 2 trillion Special Drawing Rights (SDRs), a reserve currency that can be exchanged for dollars, to ensure that low- and middle-income countries have the resources to tackle the human and economic destruction from COVID-19.
The IMF’s ability to allocate SDRs during global financial crises is critical in places like my home country of Nigeria. African governments are working hard to combat the spread of COVID-19, but the continent’s unique market vulnerabilities and limited healthcare systems make it a particularly difficult battleground for COVID-19. One-third of Africans lack access to clean water for hand washing. Health services infrastructure is poor. And many are particularly vulnerable to COVID-19 because of malnutrition.
Nigeria has made a clear national effort to respond to the pandemic. The government and central bank have introduced financial relief packages for workers in the formal sector, provided welfare support, and implemented public health measures such as social distancing and test and trace monitoring.
However, implementation has been weak, delayed, and often ineffective. In Nigeria, a country of 200 million, the capacity to run COVID-19 tests sits at a paltry 2,500 a day. To put this into perspective, New York City, with a population of 8.4 million, is conducting upwards of 20,000 tests a day. Meanwhile in Nigeria, cases continue to rise, and the country has yet to reach its peak.
The economic fallout from the pandemic is also a challenge, particularly for governments like Nigeria whose economy, like the majority of African countries, is largely commodity dependent.
Steep declines in aggregate demand and commodity prices as a result of COVID-19 and the world recession have caused economic strain and bloated fiscal deficits. At the same time, four times the amount of investment capital lost from emerging markets in the 2008 global financial crisis has been withdrawn in this year alone. This investor pullback has created steep barriers to borrowing. The result is an unsustainable increase in sovereign debt and, without intervention, near certain defaults.
Even before the global pandemic, Nigeria, whose oil industry accounts for 90 percent of its exports, was struggling to recover from the 2014 oil price shock. While the government had rolled out legislation to shore up aggregate demand, in March the minister of finance cut nonessential capital spending by $4.17 billion, turning the focus towards more targeted COVID-19 relief. The country’s debt profile is at N33 trillion, after the Senate approved a $22.7 billion foreign loan for the country. Servicing of such debts will inevitably impact Nigeria’s response to COVID-19.
The picture here is clear. African countries must receive further assistance, or the increase in COVID-19 cases will ravage their existing healthcare systems and lead many into economic collapse and political unrest. The assistance will complement the efforts of both faith-based and secular U.S. non-governmental organizations in their effort to respond to humanitarian relief, development and peacebuilding needs around the globe.
The solution is simple, and will literally cost the United States zero dollars.
In 2009, the IMF employed SDRs as an important economic assistance tool. Eleven years later, we are facing a complex financial and global health crisis whose predicted impact far surpasses that felt by the 2008 global financial crisis. Leading economists, along with the IMF managing director, the secretary general of the UN, and most G20 countries, are calling for the allocation of SDRs, a proven resource in mitigating the impact of financial crises on LMIC.
The issuance of SDRs is a quick way to increase foreign currency reserves, allowing them to borrow at lower interest rates. SDRs can also be exchanged for hard currencies, enabling the import of essential goods such as food and medical supplies. An issuance of 2 trillion SDRs would mean Nigeria, for example, would receive $16 billion USD worth of these financial resources. This emergency fiscal stimulus would help the government to address payment and debt crises, strengthen its health infrastructure, and save lives.
But the IMF cannot move forward without U.S. support, necessary for an 85 percent majority vote. Without U.S. support, this cost-free and fast-acting fail safe will be squandered. Treasury has thus far shown no interest publicly in moving forward with a major SDR issuance, so Congress must step in.
The passage of legislation on July 31 in the House was a critical first step. Now it’s time for the Senate to act.
The U.S. must engage on this issue and vote with the rest of the 189 member countries at the IMF to drive support and economic relief for vulnerable countries, and for our global economy that rests upon them. Our country is stronger when we assist the global community including Africa. In a global economy, a looming socio-economic and health crisis will hurt here at home too. Our leadership is pivotal in this fragile moment.