David Beckham and Kate Moss did their bit. The British public dug deep during the grimmest recession in decades to give a record amount for the Comic Relief appeal. Easy though it is to be cynical about the annual luvvie fest, the stories of African mothers suffering the agonies of childbirth and the eight-year-old boy dying of TB were simple yet moving.
The triumph of generosity over self-absorption is the good news. The bad news is that even if the total of almost £60-million raised on the night swells to £100-million with late donations, it won’t be nearly enough to cope with the development disaster that is unfolding in Africa.
Disaster is not too strong a word. In the West, recession means rising unemployment, falling house prices and failed businesses. There are incidences of acute hardship, but for many the belt-tightening involves trading down from Waitrose to Aldi. In Africa, recession means children taken out of school and clinics running out of drugs; belt-tightening means hunger, malnutrition and death. This is an avoidable disaster, but it will require Western governments and the international organisations they command to show the munificence of the British public — now. The vague promise of extra funding for the International Monetary Fund at some point in the future — the commitment made by G20 finance ministers on Saturday — is just not good enough.
After the lost decade of the 1990s, Africa did better in the pre-crash years. Growth rates were high enough to provide increases rises in per-capita incomes and many governments used the fruits of expansion, supplemented by aid and debt relief, to boost welfare spending. Enrolment in school was six times the level of the 1990s; there was evidence of a reduction in extreme poverty.
Will this process withstand the downturn? As things stand, no. In the past, a one percentage point drop in global growth led to a 0,5 point fall in growth in sub-Saharan Africa. This time the International Monetary Fund thinks it could be worse because the credit crunch has led to a drying up of trade finance and other capital flows. It has halved its growth forecast for the region to just over 3%, but the risks, a bigger slump in the global economy, a sharper drop in remittances sent home by migrant workers and rising pressure for social spending as the recession deepens, are heavily weighted on the downside.
Current account deficits are widening and the fiscal position is deteriorating fast, with a 2% budget surplus in 2008 likely to become a 4% deficit this year. The IMF believes the world’s poorest countries need a minimum of $25-billion to cope with the impact of the shock to their international reserves and in a “bad case” scenario might need $140-bilion. The latter looks a lot more likely than the former.
Rich countries made promises on aid at the Gleneagles summit in 2005, but have — with certain notable exceptions, such as Britain — yet to keep them. “Now is the time for development partners to honour and even scale up aid commitments,” the IMF said in a paper on the impact of the crisis on Africa. “Current financing constraints make it even more important for donors to ensure that aid is predictable, transparent and aligned with the policy priorities of the recipients. Aid would be particularly useful now.”
As things stand, it is not going to happen. France and Ireland are talking about cutting aid budgets and others will be tempted to follow as the cost of the recession rises. The IMF knows that, and says poor countries will have to economise. “With many countries facing binding fiscal constraints and the outlook for significantly increased bilateral aid flows unlikely, many countries will need to rationalise spending and increase efficiency to create fiscal space for protecting social and Millennium Development Goals-related spending.”
Antoinette Sayeh, director of the IMF’s Africa department, put it more bluntly last week. She told the FT: “We want African countries to take responsibility for adjusting their fiscal and monetary policies to the shock.”
There is, no doubt, room for some scope to increase the “efficiency” of public spending in poor countries. But let’s be clear: the sort of fiscal shock that is looming for the low-income countries would not be tolerated in the west. Indeed, developed countries are busy throwing money at the crisis in the belief that it will ease the pain. Poor countries do not have the resources to administer a fiscal stimulus to match the 5% of GDP boost delivered in the US by Barack Obama; the only way they will be able to prevent schools from closing, more mothers from dying in childbirth and infants starving is if aid is increased and debt relief is stepped up.
As Kevin Watkins, chief economist at Unesco put it: “Africa desperately needs a massive injection of aid and support to stave off reversals in human development. Unfortunately, all the region is getting is a massive injection of advice about the virtues of budgetary prudence and some small change from IMF and World Bank emergency response funds.”
So what could be done? First, the spirit of generosity that has seen Western taxpayers foot the bill for the excesses of their banks should be extended to the (much smaller) debts of poor countries.
The Jubilee Debt Campaign has called for wider and deeper debt cancellation amounting to at least $400-billion; reform of the IMF and World Bank to ensure the removal of economic policy conditions from lending and debt relief; a debt tribunal to ensure a “fair and open” work out process for debt at the global level; and a crackdown on illicit capital flight so poor countries are able to raise more of their own capital. One of the original objections to debt relief was that it would create “moral hazard” — an incentive for poor countries to repeat past mistakes. After the rescue packages conjured up for Wall Street and the City, we should never have to hear the words again.
A second proposal is to try quantitative easing on a global scale, with the IMF boosting the money supply through an increase in its special drawing rights. Under IMF rules, this would not be much help to developing countries, since the poorer the country the smaller the SDR allocation. So, change the rules.
For its part, the World Bank could do more to see poor countries through their cash crisis by front-loading ultra-cheap loans through its soft loan facility, the International Development Association.
Moral and political pressure must be put on rich countries to keep their pledges. Alistair Darling said after Saturday’s G20 that finance ministers had agreed to do whatever it took to see the global economy through troubled times. Presumably this means sparing the poorest children in the poorest countries from an early grave. Or don’t they count? – guardian.co.uk