Treasury Secretary Janet Yellen’s trip Africa this week can play a major role in helping the Biden administration reset the U.S.-Africa relationship. It holds the promise of starting a new chapter in policy cooperation and helping promote action in three critical areas: climate finance, inclusive global governance, and debt relief.
The visit – with stops in Senegal, Zambia, and South Africa – comes on the heels of the recent White House Africa Leaders Summit and the administration’s commitment to invest more than $55 billion in the continent over the next three years.
President Joe Biden’s pledge to increase support to Africa must include resources to combat the climate crisis. Africa is home to 6 of 10 countries most vulnerable to climate change, and many African countries are consistently sustaining serious impacts, from severe drought to coastal erosion. But a lack of resources is preventing urgent action. Some estimates show that climate adaptation alone will require upwards of $50 billion per year by 2050, far more than the $11 billion spent in 2020.
Meanwhile, energy poverty in Africa is a huge concern, with only half the population outside of North Africa having access to electricity. While programs like South Africa’s Just Energy Transition Partnership are critical to transition high-emitting countries away from coal, the needs of various African nations differ dramatically. U.S. support must recognize specific country- and regional-level climate needs and help address broader financing gaps on a continent already facing severe financial hardship.
Last month’s failure by Congress to even come close to Biden’s pledge of $11.4 billion per year in climate finance may be an unfavorable precursor to this trip. But Yellen has other important levers to use. Not least, it is crucial that the Treasury Department shape and drive the growing momentum toward modernizing and reforming the multilateral development banks (MDBs), institutions that are squandering their potential to more meaningfully help countries mitigate and adapt to climate change.
Africa as Central to Reshaping Global Institutions
Yellen, many of her African counterparts, and the African Union (AU) have been outspoken in calls for MDB reform, including to their priorities, financial models, operations, and governance structures. Indeed, Africa needs to be central to the debate on reshaping global institutions. Yellen’s travel will provide the opportunity to elevate consultation with African leaders, including Senegal President Macky Sall, who is also chair of the AU. At the summit, the administration pledged to “work to realize greater and long overdue African representation in international institutions,” including by supporting an African Union seat in the G20. Yellen should think even bigger and take action to ensure the international financial system better serves the African people, as their leaders have been demanding.
For one thing, this visit should be a springboard for closer strategizing on how to use the upcoming Spring meetings of the World Bank and the International Monetary Fund (IMF) to catalyze the ambitious action needed. As one example, the Treasury Department could concretely expand African economic leadership by backing a third chair for sub-Saharan Africa on the IMF’s Executive Board, an influential decision-making body with direct impact on the global economy and especially developing and emerging economies. Africa represents more than 15 percent of the world’s population (projected to increase to 25 percent by 2050), but the continent currently holds less than 5 percent of the voting shares on the IMF Board. The United States, by contrast, holds 16.5 percent of the vote with less than a third of that population. The additional chair for sub-Saharan Africa would provide a significant step towards broader reforms needed at the Fund, and is supported by the developing country-led “Group of 24.” However, backing from the United States is make-or-break since major decisions at the IMF require 85 percent support.
The Biden administration’s Africa strategy has rightly focused on the need to support democracy and good governance in Africa. But these goals are hampered by multiple crises, including the effects of strangling debt. Sovereign debt on the continent is a serious concern, with African countries representing the vast majority of those categorized by the IMF as already in debt distress or at high risk.
How to resolve unsustainable burdens of sovereign debt is a longstanding conundrum that took center stage with the 1990s “Jubilee” movement and is now again coming to the forefront. Post-pandemic, the situation has reached crisis levels, with inflation pushing up the cost of borrowing for poorer countries. The resulting government spending cuts to service that debt have been devastating, especially for women and girls, who bear the brunt of reduced public services and crumbling infrastructure.
“Do Better” on Debt Relief
Current debt relief mechanisms are deeply inadequate. The Zambian case is particularly stark: the government spends four times as much on debt repayments as it does on healthcare. Zambia is one of very few countries (all African) to apply to restructure debt under the G20’s Common Framework; but movement on negotiation with creditors has been glacial, with no restructuring yet agreed after more than a year.
Yellen has acknowledged that the G20 must “do better” on debt relief, including in the case of Zambia. Now, she should use her trip to lay out a vision for swifter, more far-reaching, and transparent debt relief for debt-burdened countries in Africa and beyond. The United States should use its considerable leverage to bring private creditors to the negotiation table.
The IMF/World Bank Spring Meetings will be an opportunity to reactivate momentum towards a new allocation of Special Drawing Rights, as another tool to give indebted countries some breathing room. SDRs are a form of unconditional and relatively immediate financing to grant countries more liquidity, in the form of a claim on the IMF’s reserves that can be used according to a country’s needs and incur very low rates of interest. A historic new issuance was made in August 2021 in response to the pandemic, providing a much-needed injection of finance for many countries. Those emergency conditions are still with us, especially for many indebted African countries. One critique is that SDRs are a blunt and badly targeted tool, as they are assigned according to a country’s IMF quota share; but, there are channels for redistributing the SDRs that can be built upon.
With the last Treasury secretary having visited Africa more than 20 years ago, Yellen’s trip is a welcome chance to push the reset button on U.S.-Africa relations in ways that protect African economies facing the specter of “poly-crises” during these extraordinary times.
IMAGE: U.S. Treasury Secretary Janet Yellen (L) meets with President of Zambia Hakainde Hichilema during the U.S.-Africa Leaders Summit on December 15, 2022 in Washington, DC. The Summit brought together heads of state, government officials, business leaders, and civil society to strengthen ties between the U.S. and Africa. (Photo by Kevin Dietsch/Getty Images)
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