The international community should take urgent action to prevent a humanitarian crisis in Afghanistan, the IMF said Thursday.
With the country currently cut off from funding from the International Monetary Fund, the Washington-based crisis lender is worried about the fate of the people in Afghanistan, spokesman Gerry Rice told reporters.
“We stand ready to work with the international community to advocate for urgent actions to stall a looming humanitarian crisis,” Rice said.
Rice signaled the IMF favors “allowing the flow of remittances and small scale transfers” to Afghanistan.
But the IMF cannot resume direct engagement with Afghanistan “until there is clarity within the international community on the recognition of the government.”
“We’re deeply concerned with the difficult economic situation in Afghanistan and the humanitarian situation in Afghanistan and we’ve said, the immediate focus should indeed be on that humanitarian situation (and) aid to help the Afghan people.”
After the civilian government in Kabul fell swiftly to the Taliban, the IMF and World Bank suspended activities in the country, which meant withholding aid as well as $340 million in new reserves issued by the IMF last month.
And with Washington blocking access to much of the $9 billion in Afghan reserves held overseas, the country is facing a cash crunch.
Despite its swift takeover of the government in Afghanistan, the Taliban will not have access to most of the nation’s cash and gold stocks, while the IMF announced it won’t provide aid.
A spokesperson for the Washington-based crisis lender on Wednesday said it had decided to withhold its assistance to Afghanistan amid uncertainty over the status of the leadership in Kabul.
“There is currently a lack of clarity within the international community regarding recognition of a government in Afghanistan, as a consequence of which the country cannot access… IMF resources,” the official said.
Central bank governor Ajmal Ahmady said on Twitter the Da Afghanistan Bank (DAB) had around $9 billion in reserves, but most of that is held overseas, out of reach of the Taliban.
“As per international standards, most assets are held in safe, liquid assets such as Treasuries and gold,” said Ahmady, who fled the country on Sunday, fearing for his safety as the Taliban swept into the capital.
The US Federal Reserve holds $7 billion of the country’s reserves, including $1.2 billion in gold, while the rest is held in foreign accounts including at the Basel-based Bank for International Settlements, Ahmady said.
A US administration official told AFP on Monday that “any central bank assets the Afghan government have in the United States will not be made available to the Taliban.”
Amid reports the Taliban were quizzing central bank staff on the location of the assets, Ahmady said, “If this is true — it is clear they urgently need to add an economist on their team.”
He repeated that Washington on Friday had cut off cash shipments to the country as the security situation deteriorated, which may have fueled reports the Taliban stole the reserves since the country’s banks could not return dollars to account holders.
“Please note that in no way were Afghanistan’s international reserves ever compromised,” and are held in accounts that are “easily audited,” Ahmady said.
No SDRs for Kabul
The IMF’s aid would include an existing $370 million loan program, as well as access to reserves in the form of Special Drawing Rights (SDR), the lender’s basket of currencies.
“As is always the case, the IMF is guided by the views of the international community,” the fund official said.
The International Monetary Fund has taken similar action against other regimes not recognized by a critical mass of member governments, as in the case of Venezuela.
The IMF is set to distribute 650 billion in SDRs on August 23 to all eligible members, of which Afghanistan’s share was valued at about $340 million, Ahmady said.
The IMF in June released the latest installment of the $370 million loan to Afghanistan approved in November and aimed at helping support the economy amid the Covid-19 pandemic.
The World Bank has more than two dozen development projects ongoing in the country and has provided $5.3 billion since 2002, mostly in grants.
The status of those programs is unclear as the development lender works to pull staff out of the country.
An internal memo to World Bank personnel obtained by AFP said “senior management is working around the clock to arrange an urgent evacuation of our staff and their family members.”
Meanwhile, Western Union announced Wednesday it was temporarily cutting off wire transfers to the country — another vital source of cash for the people.
Nigeria has been allocated about $3.35 billion as part of a historic general allocation of Special Drawing Rights (SDRs) of the International Monetary Fund (IMF).
This is a result of the approval of a general allocation of about SDR456 billion – an equivalent of $650 billion – by the IMF Board of Governors on Monday.
The allocation which was approved on Monday aims to boost global liquidity at a time when the world is grappling with the coronavirus (COVID-19) pandemic.
“This is a historic decision – the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis,” said IMF Managing Director, Kristalina Georgieva.
Although it is not a currency, the SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries.
It is a potential claim on the freely usable currencies of IMF members and can provide a country with liquidity. The SDR is defined by the US dollar, Euro, Chinese Yuan, Japanese Yen, and the British Pound.
Supporting Pandemic Recovery
The amount allocated to Nigeria is as a result of the exchange rate of reference which is 0.702283 SDR to a dollar as of July 1, 2021, and Nigeria has 2.4545 billion SDRs.
“The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy,” the IMF managing director added.
“It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis.”
According to the IMF, the general allocation of SDRs will become effective on August 23 and the newly created SDRs will be credited to IMF member countries in proportion to their existing quotas in the Fund.
It stated that about $275 billion (about SDR 193 billion) of the new allocation will go to emerging markets and developing countries, including low-income countries.
Georgieva promised that the fund would continue to engage actively with its membership to identify viable options for voluntary channelling of SDRs from wealthier to poorer, and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth.
One key option is for members that have strong external positions to voluntarily channel part of their SDRs to scale up lending for low-income countries through the IMF’s Poverty Reduction and Growth Trust (PRGT).
The IMF said the concessional support through the PRGT was currently interest-free, adding that it was exploring other options to help poorer and more vulnerable countries in their recovery efforts.
A new Resilience and Sustainability Trust could be considered to facilitate more resilient and sustainable growth in the medium term, it stated.
The world’s richest nations must do more to help the poorest countries withstand the “devastating double-blow” of the pandemic and the resulting economic damage, IMF chief Kristalina Georgieva said Wednesday.
Warning of a “deepening divergence” between rich and poor, she called on the G20 to take urgent steps to keep developing nations from falling further behind in vaccine access and funding to repair their fortunes.
In a blog post ahead of this week’s meeting of G20 finance ministers and central bankers, the head of the International Monetary Fund said “speed is of the essence” but the price tag is relatively small.
“Poorer nations are facing a devastating double-blow” losing the race against the virus and missing out on key investments that will help lay the groundwork for economic growth, Georgieva said.
“It is a critical moment that calls for urgent action by the G20 and policymakers across the globe,” she said.
While the United States is poised to grow by its fastest pace since 1984 and countries like China and the euro area are gaining momentum, the developing world is being left behind by a “worsening two-track recovery, driven by dramatic differences in vaccine availability, infection rates, and the ability to provide policy support.”
She again pressed the G20 to do more to help get vaccines to the poor countries, including sharing doses, accelerating debt forgiveness, and endorsing the goal of vaccinating at least 40 percent of the population in every country by the end of 2021, and at least 60 percent by the first half of 2022.
With less than one adult in 100 fully vaccinated in Sub-Saharan Africa, compared to 30 percent in advanced economies, those countries are at higher risk for emerging Covid-19 variants.
The IMF estimated that low-income countries will need to deploy about $200 billion over five years just to fight the pandemic, and another $250 billion for economic reforms to allow them to catch up to the richer nations.
But Georgieva said they cannot do that on their own and wealthy nations must “redouble their efforts, especially on concessional financing and dealing with debt.”
The Washington-based crisis lender has proposed a $50 billion joint effort with the World Health Organization, World Bank and World Trade Organization to expand vaccine access, “a global game-changer” she said would save hundreds of thousands of lives and accelerate the recovery.
In areas where infections continue to rise, she said it is “critical” that businesses and families continue to receive financial support, but once the virus is under control funds can shift to things like worker training programs to “help heal the scars of the crisis,” which hit women especially hard.
Georgieva also said the IMF is keeping an eye on rising prices, particularly in the United States, but as the recovery gains traction “it will be essential to avoid overreacting to transitory increases in inflation.”
The International Monetary Fund has approved the immediate disbursement of $772 million to Angola as part of a three-year arrangement signed in 2018 to reform its economy.
It was the latest tranche of a $3.7 billion facility granted to the southern African nation to improve governance and diversify its economy to promote sustainable, private sector-led economic growth, the Fund said in a statement Wednesday.
The Fund’s board also indicated it favors an extension of the country’s debt service moratorium until the end of December 2021.
With the Covid-19 pandemic, the IMF had also authorized a credit increase of $765 million to help Angolan authorities fight the disease.
The IMF is continuing meetings to restructure Chad’s debt, the fund spokesman said Thursday, despite the country being run by a military junta after the death of President Idriss Deby Itno in battle.
“I can tell you the creditor committee had a technical meeting earlier this week, and a follow-up meeting is planned for next week,” Gerry Rice told reporters at the IMF headquarters in Washington.
Chad in January became the first country to request debt restructuring under a new mechanism established last year by the G20 as it dealt with a heavy debt burden exacerbated by the downturn caused by Covid-19, which sunk prices of its main export oil.
The country is among several in Africa dealing with high debt loads, and Ethiopia and Zambia have made similar debt relief requests.
In late January, the Washington-based crisis lender announced a four-year interim agreement under its Extended Credit Facility and Extended Fund Facility, both viewed as necessary steps in restructuring Chad’s debt.
However, the IMF executive board has not approved the programs. According to fund data, Chad’s external debt stood at 25.6 percent of GDP as of the end of 2019.
“Chad urgently needs a debt relief to help recover from this crisis, and success with (Chad’s) common framework request will also help more countries step forward if they need debt restructuring,” Rice said.
G20 and Paris Club creditors — including China, France, India and Saudi Arabia — had supported a request from Chad for debt restructuring following a mid-April meeting.
But days later, Deby was killed in fighting with rebels, plunging Chad into political turmoil amid claims from the opposition that the junta’s takeover amounted to an “institutional coup.”
Rice did not comment on the political situation in his press conference.
The Senate has approved the sums of $1.5billion and €995million external loans for the Federal and State Governments.
The Red Chambers gave the approval after considering the report of its Committee on Local and Foreign Debts on the external borrowing plan of the Federal Government.
Chairman of the Committee, Clifford Ordia, told the lawmakers that the panel had considered the loan request and was recommending its approval.
The €995m loan is meant for agricultural mechanisation across the 774 LGAs while the $1.5billion loan will be used to fund critical infrastructure in the aftermath of the COVID-19 pandemic across the 36 states and the federal capital territory.
Accelerated vaccinations and a flood of government spending, especially in the United States, have boosted the outlook for the global economy, but more must be done to prevent permanent scars, the IMF said Tuesday.
The International Monetary Fund’s World Economic Outlook now sees world growth of 6.0 percent this year after the contraction of 3.3 percent in 2020 amid the Covid-19 pandemic — the worst peacetime downturn since the Great Depression a century before.
Rapid government responses prevented a much worse outcome, a collapse that could have been “at least three times as large,” IMF chief economist Gita Gopinath said.
The United States, which deployed another $1.9 trillion last month, is expected to grow by 6.4 percent, among the fastest expansions in the world and 1.3 points higher than the January forecast.
Meanwhile, China’s economy, one of few that grew last year, will expand 8.4 percent in 2021, the IMF said.
The Euro Area too will see GDP expand 4.4 percent, slightly better than the prior forecast.
Gopinath said that “even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible.”
However, she stressed that the health crisis remains the critical factor in the economic recovery, and the slow rollout of vaccinations to many developing countries fuel risks not just of a worsening Covid-19 outbreak, but also a more troubling future for those nations and a widening gap with rich countries.
“The outlook presents daunting challenges related to divergences in the speed of recovery both across and within countries and the potential for persistent economic damage from the crisis,” she said in the forward to the report.
As the pandemic caused business and trade shutdowns, the damage done to developing nation economies slashed per capita income and “reversed gains in poverty reduction,” she said.
The IMF calculates that an additional 95 million people expected to have entered the ranks of the extreme poor in 2020, and there are 80 million more undernourished than before.
– ‘Deeply iniquitous’ – “Averting divergent outcomes will require, above all, resolving the health crisis everywhere,” Gopinath said.
That requires cooperation to ensure widespread vaccinations across the world to address the “deeply iniquitous” vaccine access where rich countries are scooping up the bulk of the supply.
While the United States is expected to surpass its pre-pandemic GDP level this year, after China did so last year, many others will not hit that threshold until 2022 or well into 2023 for developing nations.
The IMF warned against withdrawing government support too soon, and urged policymakers to safeguard the recovery through policies to support firms, including ensuring adequate supply of credit, and workers with wage support and retraining.
That also calls for resources to help children who have fallen behind in their education during the pandemic, the fund said.
“Without additional efforts to give all people a fair shot, cross-country gaps in living standards could widen significantly, and decades-long trends of global poverty reduction could reverse,” Gopinath said.
The IMF on Friday approved a $2.34 billion aid package to Kenya to “address the urgent need to reduce debt vulnerabilities,” the institution said in a statement.
The Washington-based development lender said the funds would be spread over 38 months, with an immediate disbursement of about $307.5 million, “usable for budget support.”
“Kenya was hit hard at the onset by the Covid-19 pandemic,” the International Monetary Fund said, highlighting the country’s “forceful policy response” that led to an economic recovery in 2021 after a slight contraction in GDP in 2020.
But the crisis has also exacerbated “pre-existing fiscal vulnerabilities.”
“Kenya’s debt remains sustainable, but it is at high risk of debt distress,” the statement said, adding that “fiscal and balance-of-payments financing needs remain sizable over the medium term.”
Antoinette Sayeh, IMF deputy managing director, called the aid “a strong signal of support and confidence” but noted it is “subject to notable risks, including from uncertainty about the path of the pandemic.”
The IMF on Thursday warned of “diverging recoveries” among global economies as they struggle with the ongoing Covid-19 pandemic, even as vaccines are approved.
“We are seeing overall improvement in the global economy, but with many countries and people, too many, still left behind,” the Washington-based crisis lender’s spokesman Gerry Rice said.
“We have described it in the past as diverging recoveries and countries being at very different levels, and I think we’re still seeing that broad picture.”
The International Monetary Fund will on April 6 release new growth forecasts for the global economy, after in January predicting it would see a strong rebound of 5.5 percent this year after contracting 3.5 percent in 2020 as Covid-19 sealed borders and disrupted businesses.
However the lender warned the outlook is beset by “extraordinary uncertainty,” and said the global economy was set to lose $22 trillion from 2020 to 2025 due to the pandemic.
The fund this month said the $1.9 trillion relief measure US President Joe Biden signed will boost growth both in the world’s largest economy and internationally, and expand US GDP by five to six percent over three years.
It will also increase demand, helping other countries sell more products to US consumers.
Biden is expected to unveil a measure to improve US infrastructure that could cost as much as $3 trillion but potentially also increase the country’s high debt and deficit levels.
Sudan announced Sunday it was ditching its fixed exchange rate and adopting a managed float, in line with an IMF programme but at the risk of fanning already-smouldering discontent.
The move aims to stem a flourishing black market that has seen the local pound recently trade at around 400 to the dollar, while the official rate was fixed at 55 pounds to the greenback.
It is expected to substantially devalue the official exchange rate towards black market levels, sending prices higher even as citizens grapple with an inflation rate that topped 300 percent last month.
The transitional government has decided to undertake policies “aimed at reforming and unifying the exchange rate system by applying a managed flexible exchange rate system,” the central bank said in a statement.
Closing the yawning gap between the official and black market exchange rates is central to a reform programme agreed with the International Monetary Fund last year.
The central bank said its policy shift, which follows the recent appointment of a new cabinet tasked with tackling the economic crisis, is “imperative” to help achieve stability.
It is one of several painful IMF mandated reforms, which also include reducing costly subsidies, aimed at securing debt relief and attracting investment following the April 2019 ouster of autocrat Omar al-Bashir.
Newly-appointed finance minister Gibril Ibrahim urged citizens to tolerate the impact of the policy change, saying in a press conference on Sunday that it “will require a high patriotic spirit” and “cooperation”.
Ominously for Sudan’s transitional authorities, protests have already flared in recent weeks in several areas over the skyrocketing prices, alongside bread and medicine shortages.
Sudan’s economy was decimated by decades of US sanctions under Bashir, mismanagement and civil war, as well as oil-rich South Sudan’s 2011 secession.
– Cushioning the blow –
The finance minister and the central bank governor, Mohamed al-Fatih, said the exchange rate policy shift will be cushioned by international donors financing a project aimed at supporting poor families from Monday.
The programme offers $5 dollars per month each to around 80 percent of the country’s 45 million population.
In January, the IMF said it was “working very intensively” with Sudan to build the preconditions for debt relief.
The US recently removed Sudan from its state sponsors of terrorism blacklist, another move Khartoum hopes will unlock debt relief and aid.
The central bank governor said Sudan has begun applying a dual banking system, instead of solely Islamic banking, in a move allowing international banks to operate in the country.
The exchange rate policy shift comes amid concern that Sudan’s level of foreign currency holdings are approaching exhaustion.
If the central bank is to be successful in drawing transactions away from the black market, then reserves need to stand at around $5 billion, Mohamed el-Nayer, a Sudanese economist, told AFP.
Authorities have not lately disclosed the level of reserves.
Asked if the country had enough reserves, the Ibrahim replied that funds had lately been received, but did not specify the origin or amount.
But the recent bread shortages — and also of fuel — point to the possibility of “severely lacking” foreign reserves, the economist Nayer said.
Bashir’s fall nearly two years ago came after months of protests against his autocratic rule that were triggered by his cash strapped government effectively trebling bread prices.
In October, Sudan signed a peace deal with rebel groups that observers hoped would end long-running conflicts in the country’s far-flung regions.
Last month, the government approved this year’s budget and it is aiming for inflation of 95 percent by end-2021.
Fears that inflation could spiral out of control due to a massive US stimulus package are overblown, IMF chief economist Gita Gopinath said Friday.
Her argument contradicted critics of US President Joe Biden’s proposed $1.9 trillion rescue package for the world’s largest economy, who say the amount is excessive, and even those Democratic economists who have also raised concerns about price spikes.
Gopinath estimated that with the full amount of stimulus, inflation “would reach around 2.25 percent in 2022, which is nothing to be concerned about,” she said in a blog post.
Some economists, including former Treasury secretary Larry Summers, have urged caution saying excess spending could spark an inflationary spiral that the Federal Reserve would find difficult to control.
Rising prices would erode purchasing power and higher interest rates to control inflation would send the cost of borrowing soaring in an economy already awash in debt amid the coronavirus pandemic.
Gopinath noted the “concerns about an overheated economy that could push inflation well above the comfort zone of central bankers.” But she said “the evidence from the last four decades makes it unlikely.”
In the decade following the global financial crisis, US annual inflation barely cracked the Federal Reserve’s 2 percent target, and in December the rate was just 1.3 percent.
And Gopinath said the proposed government aid will push US GDP up five to six percent over three years, which would recoup the 3.5 percent contraction in 2020.
The IMF has consistently supported a large US stimulus plan to recover from the Covid-19-induced recession that has left millions jobless.
US Treasury Secretary Janet Yellen late Thursday repeated the administration view that “the price of doing too little is much higher than the price of doing something big.”
Yellen noted that inflation has been very low for over a decade, and while it remains a risk “it’s a risk the Fed and others have tools to address.”
– Market turbulence – Yellen, like US central bank chief Jerome Powell, who succeeded her in the post, stressed that true unemployment in the US is close to 10 percent — above the government’s official rate of 6.3 percent last month — and about nine million people remain unemployed, which she says justifies the size of the government aid.
But growing signs that the economy is coming back to life as businesses reopen amid an accelerating vaccination campaign have caused markets to begin to fret about impending price hikes.
The yield on 10-year Treasury notes, a benchmark for inflation expectations, has been rising sharply since October, and accelerated since the start of the year to around 1.3 percent, the highest since before the pandemic.
Those fears got a boost from a spike in the producer price index (PPI), which showed wholesale inflation surged 1.3 percent in January, the largest since the index was revamped in December 2009.
But Powell last week brushed off inflation concerns, saying after prices collapsed last year, some sharp increases are expected but would be unlikely to last.
In the current environment, “we want to see actual inflation,” before the Fed would take any steps to raise interest rates or roll back the massive bond-buying program, Powell said.
The IMF economist acknowledged “the danger of market turbulence” due to temporary price swings, or bad news about new virus variants.
But she said that in the wake of the crisis “considerable slack remains in the global economy” which would dampen price pressures, and worldwide supply chains have largely not suffered disruptions, removing another potential source of rising costs.