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The Current Economic Crisis in Egypt and the Attempts to Drag the Egyptian Army into a War Against Iran

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By  Dr.Nadia Helmy

The United States of America is trying to force Egypt to enter into a regional war against Iran for the benefit of the countries of the Arab Gulf region and Tel Aviv. Hence, the United States of America and its other partners in the international monetary and financial institutions are putting pressure on Cairo in this regard, through the arbitrary policies of the International Monetary Fund and its major shareholders.  And on top of them: the United States of America, Britain, France and Germany, as an attempt to oblige Cairo to agree with them to confront Iran, and with Egypt having to resort to the International Monetary Fund for the fourth time since 2016, after that game of American, Israeli and Western intelligence in confronting the Egyptian army to force it to confront Iran, after the game of withdrawing a number of major international investors from the country for purely intelligence, political and military reasons in favor of the goal of confrontation.  with the Tehran regime.  This coincided with the practice of Washington and the Western powers, through their arms in Cairo, of several artificial economic crises, such as the shortage of foreign currency in the Egyptian market, the weakness of the Egyptian pound, the rise in inflation rates, and others.

  For its part, the United States is trying to gather more allies in its war against Iran.  In this regard, it is trying to persuade the European Union to join its alliance in the war against Tehran.  Perhaps the big gap in the front of the United States of America remains the European Union, through which the Iranian regime wants to penetrate in order to weaken the American and Israeli position that is motivated and mobilized towards the danger of war.  Perhaps because of the refusal of the countries of the European Union and the countries of the NATO military alliance to bow to the American and Israeli demands to enter into direct military confrontations against Iran, it was the main direct reason for the threat of former US President “Trump” to expel the United States from NATO membership and to keep Europe alone in front of the Russian threat, which might force the countries of the European Union, from the point of view of “Trump”, at the time to modify the views of the countries of the European Union and the countries of the NATO military alliance.

From my analytical point of view, what is happening in the region in terms of the American and Israeli attempt to mobilize against Iran with Gulf support, and the attempt to drag the Egyptian army to fight without its direct interest at the present time to confront mainly with Tehran, is a war with different faces and multiple players, but Iran remains the field.  The main conflict is in a war fueled by central banks, the economic structure, oil, banking and trade at all levels.

On the other hand, the options available to Iran seem limited to confront the specter of the American-Israeli-Gulf war in confronting it, in addition to the ongoing economic war and the growing threats against it. The options against Tehran appear to be all accompanied by risks and risks.  Internally, Iran has to convince its people to bear the policy of austerity, and externally, the Iranian regime is counting on the support of China, Russia, and the armed militias that support it in the countries of the region, perhaps to threaten through it to ignite the situation throughout the region and hint at the danger of the straits and sea lanes in the Red Sea. On top of them are the Straits of Bab al-Mandab and Hormuz and the Gulf of Aden.  This may make the situation more complicated for America, Israel and their other allies in the event of entering into any uncalculated military confrontations with Iran, which Egypt and President El-Sisi are well aware of the enormity of engaging in any potential clashes with the Tehran regime.

  The point of view of Egyptian President “Abdel Fattah El-Sisi”, as a former military intelligence man, and the Egyptian army, and their response to any attempts to enter into military confrontations with Tehran and try to convince the Arab Gulf states of that, is (the cost of war), in the sense of what the countries of the entire Gulf region and the region will incur by waging a similar war.  guerrilla warfare and armed militias.  As the issue of establishing and supporting armed militias in the countries of the region has become something that everyone knows and does not need proof.  And the matter is not limited to Shiite militias backed by Iran, such as: (Lebanese Hezbollah, and the Houthis in Yemen), but Iran will also find, in the event that America, Israel and the Gulf enter military confrontations with it, great and direct support from Al-Qaeda and the nearby Taliban movement in Afghanistan.  Borders with Tehran, and there are reports indicating the Iranian regime’s complicity with the terrorist organization of “ISIS”, and all of these organizations will be used once in the event of a military confrontation with Iran, and Iran will inevitably resort to re-enriching uranium very quickly and developing ballistic weapons and missiles to confront the imminent war.  The entire Gulf and region will be destroyed, as well as the movement of the straits and sea lanes will be affected and the entire international trade movement will be paralyzed, and the security of Egypt, the region and the Suez Canal will be affected, which will disrupt the global trade movement.

And in light of the outbreak of any war against Iran, the Iranian decision-maker will be forced here to resort to and use these militias and armed groups, as a pressure card on neighboring countries, the United States of America and the Gulf. Based on this option, it is likely that the pace of terrorist operations will increase in the countries of the region in the coming period of time. This is clearly understood by President El-Sisi and the Egyptian army, so he distances himself from entering into any confrontations or clashes with Iran, not to push for the complete destruction of the region in favor of Israel in the first place, as it is the only beneficiary of that war, to spread chaos and unrest throughout the region, including the Gulf countries and Arab supporter of the war against Iran.

Perhaps that economic crisis fabricated by the West in the face of Egypt, its indirect result was that American and Western call through their monetary institutions, of the need to restore foreign direct investment as a real way out of the current crisis after the flight of investments estimated at about 20 billion dollars from investment in the Egyptian debt, according to intelligence reasons. Purely, as I mentioned in my analysis, because of the attempt of the extreme right and hardliners in Israel to enter into direct military confrontations with Iran with the generous support of the Gulf countries, and their attempt to drag the Egyptian army and involve it by force to defend Tel Aviv’s malicious dreams of bringing Cairo into serious military confrontations with the Tehran regime.  Perhaps this is what the International Monetary Fund declared explicitly in favor of Washington mainly and in support of Tel Aviv’s hard-right policies, by announcing that Egypt will be affected by the global repercussions of the Russian invasion of Ukraine, with a funding gap of $17 billion over the coming years. This is the same as what “Ivana Hollar”, head of the International Monetary Fund’s mission to Egypt, declared:

 “The reform program of the authorities in Egypt must give a greater role to the private sector, which is urgent, and it is very important that the state ownership policy be approved at the highest levels,  including by the president”

  This is what Egyptian President Abdel Fattah El-Sisi understood with the mentality of a military intelligence man, as a former head of the Military Intelligence Service in Egypt, by trying to exert maximum American and Israeli pressure on Cairo in order to enter into a confrontation with unsafe consequences to confront Iran, by giving “El-Sisi” his orders to form a “crisis committee”, to follow the situation on a weekly basis as soon as the Russian invasion of Ukraine begins, as well as current events. President El-Sisi also instructed the army to provide food commodities to citizens, after President Putin’s war against Ukraine caused the largest global food crisis, if we add to it those reprehensible American and Israeli attempts to force the Egyptian army to enter into direct military confrontations with Tehran. Perhaps this was one of the main reasons, from my analytical point of view and my reading of the general political and economic scene in Egypt, behind those tours that Egyptian President “El-Sisi” made in the Arab Gulf region, specifically those presidential tours to (Saudi Arabia, the Emirates, and Qatar).

Then, the Egyptian government, represented by the “Egyptian Council of Ministers”, issued an official report issued, based on directives and presidential orders from President El-Sisi to address the Egyptian people, in a framework of transparency to address in this report the most important issues related to the general economic situation in the Egyptian state during the year 2022. Specifically, and in the context of the official report issued by the Egyptian Council of Ministers, 17 main claims and allegations were answered, in terms of (the size of the external debt, the state’s general budget, the exchange rate, the state’s credit rating, as well as the feasibility of national projects, the terms of the Monetary Fund loan, and the rise in prices.  Crisis in the situation in banks), and other issues that occupied the Egyptian street during the last period.

This brings us to the general political scene in Tel Aviv, and that successive Israeli pressure on the regimes of the Arab Gulf states for a possible and imminent attack on Iran, and perhaps that is the main reason for the use of an Israeli extreme right-wing government at the present time, which facilitated the Israeli Prime Minister “Benjamin Netanyahu” to form an alliance that is the largest of its kind in the history of Tel Aviv is the far-right parties and the religious extremists, who are pushing for the inevitable confrontation with the Tehran regime to protect the interests of Tel Aviv.

Where the Israeli hard-right, led by Israeli Prime Minister “Benjamin Netanyahu”, raises many slogans in the direction of war against Iran, including: preserving the security of the region, assisting the Gulf countries that have signed peace agreements with Israel and others, such as the UAE and Bahrain, and indirect support for Saudi Arabia in the wake of  these multiple Houthi attacks on Saudi oil facilities, and the Iranian-backed Houthi militias targeting Saudi Aramco facilities in the Red Sea, which Iran denied, in addition to the “Netanyahu” government’s promotion in Israel towards war among most segments of Israeli society, under many and varied allegations, such as: stopping Iran from acquiring nuclear weapons, and promoting that this has become one of Israel’s most important priorities in its foreign policy.

 In the event of a confrontation between Israel and Hezbollah, the turmoil emanating from Syria and the control of ISIS, which has swept the greater part of the region, will reach directly to the Egyptian border.  This particular development was raised by President El-Sisi in an official and popular public speech to him, emphasizing:

 “We do not need additional complications related to Iran and Hezbollah”, adding: “I am against war, as crises can be resolved through dialogue”

This confirms the Egyptian President Abdel Fattah El-Sisi’s endeavor to avoid the region witnessing any tensions, especially between the Arab Gulf and Iran, or witnessing further escalation with the help of Washington and Tel Aviv. Egyptian President “Abdel-Fattah El-Sisi” left no doubts about his position, assuring that:

 “The Middle East does not need security in the Gulf, which constitutes a red line. We believe in Egypt that any threat to the Gulf states also affects our national security”, with President El-Sisi acknowledging in several official speeches to him, that:

“Security in the Gulf constitutes a red line, and we believe in Egypt that any threat to the Gulf states also affects our national security”

Tel Aviv, along with Washington, has also become involved in promoting between the countries of the region and the Gulf, primarily about the feasibility of a military war against Iran, and exporting a file for Israel’s fear of Iran’s interference in countries close to its borders, with leaks that Tehran has supplied a group of ballistic missiles and precision ammunition to its proxies in “Hezbollah group” in Lebanon and in Syria as well. Therefore, Israel announces its fear of the nuclear agenda to produce nuclear weapons for Iran and the equipment that carries it as a threat to the security and safety of the entire region and the Gulf in particular as an ally of the Tel Aviv regime through normalization and peace agreements with it. Hence, the attempts of Israeli intelligence and its Mossad apparatus to strike a number of nuclear reactors in the Iranian city of Isfahan are attempts that the Israelis are promoting internally, regionally and internationally, as a “part of Israel’s attempts to strike Iranian capabilities and prevent them from supporting their proxy groups in the region”

 The fundamental question remains here, when talking about how all regional and international parties view the extent of support that China and Russia can provide to the Iranian regime in the event of war with Israel and the Gulf, with direct US-Western support?  The answer to this question will make us analyze the reasons for Washington’s efforts to curry favor with the political system in Egypt in the first place, through the visit of US Secretary of State “Anthony Blinken” to Cairo and then his departure to Tel Aviv as part of the American game of moves and probing the pulse of Egypt and the countries of the region.  Perhaps relying on Chinese and Russian support for Iran will be one of the strongest cards that the Iranians bet on, especially given the existence of vital and necessary Egyptian and Gulf interests with the Chinese and Russians in the first place. This is what China stated directly, that it is likely to continue buying Iranian oil after the conclusion of the second phase of sanctions against Tehran in November 2018.  “Mohsen Karimi”, as deputy governor of the Central Bank of Iran, confirmed in official statements published to him in the Persian media on Monday, January 30, 2023, that (Iran and Russia) have linked the communication and transfer systems of their banks to each other, to help promote commercial and financial transactions under the sway of  Tehran and Moscow to Western sanctions.

 This Russian financial and economic support for Iran has been mainly since the re-imposition of US sanctions on Iran in 2018, after Washington withdrew from the nuclear agreement concluded between them in 2015, which was mainly between Tehran and the world powers, after which Iran was separated from the “Swift” financial network, as an International Bank Transfers, which is headquartered in Belgium. The similar restrictions have been imposed on a large number of Russian banks since Moscow’s attack on Ukraine in February 2022.  This is what was confirmed by “Mohsen Karimi”, deputy governor of the Central Bank of Iran, in a public challenge to Washington and the West with the help of China and Russia, by stressing that:

 “Iranian banks no longer need to use the Swift system for transfers and financial transactions with their Russian counterparts, which can all the parties may open letters of credit, transfers or joint guarantees between the two parties”

  This was confirmed by the Russian Central Bank, in agreement with the Deputy Governor of the Central Bank of Iran, “Mohsen Karimi”, stressing that “about 700 Russian banks and 106 non-Russian banks from 13 different countries will be linked to a new credit and banking system.”  This is without going into details about the names of foreign banks that will accept such banking and financial trading away from the global financial system of “SWIFT” for financial and monetary trading, which is officially approved internationally.

 This is precisely understood from him, as the Chinese and Russians did not leave Iran alone in the midst of the danger or the wind of any imminent military war against them.  Perhaps, in this case, Russia will try to take revenge on Washington and Tel Aviv with generous military and economic support for Iran, especially in light of its facing sanctions by the United States of America and the European Union.

 This brings us to the political scene in Egypt in a more precise and objective manner, emphasizing the smooth and clear vision of the Egyptian approach in Cairo, and that Egypt actually does not share the concern of the Gulf countries about the West’s nuclear agreement with Iran, just as Egypt did not adopt the assessment expressed by the United States of America that Iran  It supports terrorism, in addition to the fact that Egypt plays a very conservative role in the Saudi-led coalition against the Houthis, who are sympathetic to Iran.

  Hence, we conclude, based on our reading and analysis of the general scene, that this economic crisis in Egypt is fabricated by the Americans, Israelis, Westerners, and even the Gulf states, to push the Egyptian army, as the strongest armies in the region, to bear the cost and burden of the war, which is not fundamental to Egyptian interests on behalf of everyone.  precedent for Egypt, in addition to the withdrawal of a number of foreign investors, mainly, suddenly and at once, and at the same precise and sensitive time from the Egyptian financial market within the framework of “pressuring the Egyptian regime, in order to respond to the conditions of the International Monetary Fund, and those in charge of it politically and economically in the first place, who are Washington and its allies in the West,  As a part of a systematic campaign against Egypt and its army to bear the cost and burden of the war against Iran on behalf of Israel, the Gulf and everyone, and in favor of competition between Washington, Beijing and Moscow as allies of Iran in the Middle East.

Dr Nadia Helmy is an Associate Professor of Political Science, Faculty of Politics and Economics / Beni Suef University- Egypt.

Courtesy: Modern Diplomacy


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ICD and JSC Ziraat Bank Collaborate to Boost Uzbekistan’s Private Sector

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At the 3rd Tashkent Investment Forum, the Islamic Corporation for the Development of the Private Sector (ICD) and JSC Ziraat Bank Uzbekistan took a significant step forward in their partnership to empower small and medium-sized enterprises (SMEs) and foster economic growth in Uzbekistan. The forum, held in the capital city of Uzbekistan, brought together key stakeholders from the public and private sectors to discuss investment opportunities and economic development strategies for the region. The collaboration between the Islamic Corporation for the Development of the Private Sector (ICD) and JSC Ziraat Bank Uzbekistan is aimed at boosting the private sector in Uzbekistan.

During the forum, ICD and JSC Ziraat Bank Uzbekistan formalized an expression of intent to collaborate on various initiatives aimed at supporting SMEs. One of the key elements of this collaboration is the provision of a Line of Financing (LoF) facility by ICD to JSC Ziraat Bank Uzbekistan. This LoF facility will enable the bank to fund private sector projects as an agent of ICD, thereby providing SMEs with access to the necessary capital to initiate and grow their businesses.

The partnership between ICD and JSC Ziraat Bank Uzbekistan is expected to have a significant impact on the SME landscape in Uzbekistan. By equipping entrepreneurs with the resources they need to succeed, this collaboration will not only support the growth of individual businesses but also contribute to the overall economic development of the country. SMEs play a crucial role in driving economic growth, creating jobs, and fostering innovation, and this partnership will help strengthen the SME ecosystem in Uzbekistan.

JSC Ziraat Bank Uzbekistan, as a strategic partner for ICD, brings a wealth of experience and expertise to the table. As a prominent commercial bank with foreign capital, JSC Ziraat Bank Uzbekistan has a strong track record of supporting SMEs and promoting economic development. The bank’s partnership with ICD further underscores its commitment to advancing the private sector in Uzbekistan and its dedication to supporting the country’s economic growth.

ICD, for its part, is a leading multilateral development financial institution that focuses on supporting the economic development of its member countries through the provision of finance and advisory services to private sector enterprises. By partnering with JSC Ziraat Bank Uzbekistan, ICD is furthering its mission of promoting economic development and fostering entrepreneurship in Uzbekistan and across the Islamic world.

The LoF facility provided by ICD to JSC Ziraat Bank Uzbekistan is just one example of the many initiatives that the two entities are undertaking to support SMEs in Uzbekistan. In addition to providing financial support, the partnership between ICD and JSC Ziraat Bank Uzbekistan will also include capacity-building initiatives and technical assistance programs to help SMEs succeed in today’s competitive business environment.

Overall, the partnership between ICD and JSC Ziraat Bank Uzbekistan represents a significant step forward in supporting SMEs and fostering economic growth in Uzbekistan. By working together, these two institutions are helping to create a more vibrant and dynamic private sector in Uzbekistan, which will ultimately benefit the country’s economy and its people. The collaboration between the Islamic Corporation for the Development of the Private Sector (ICD) and JSC Ziraat Bank Uzbekistan is expected to have a far-reaching impact on the private sector in Uzbekistan.


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In Times of Conflict, Spare a Thought for the Non-Gulf Economies

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By James Swanston

Positive news for non-GCC Arab economies has been in short supply of late. The Gaza conflict, missile attacks in the Red Seawar in Ukraine and last month’s tit-for-tat missile strikes between Israel and Iran have weighed on sentiment, undermined limited confidence and cut into growth.

But some positives have emerged. Headline inflation rates have slowed across much of North Africa and the Levant, implying lower interest rates, a return to real growth and more stable exchange rates. March data show inflation at an annualised rate of just 0.9 percent in Morocco and 1.6 percent in Jordan. Tunisia’s inflation rate has also come down, although it is still running at over 7 percent year on year.

Egypt’s inflation rate jumped earlier this year as the government implemented price hikes to some goods and services – notably fuel. In February, the effect of the devaluation in the pound to the level of the parallel market affected prices. But March’s reading eased to an albeit still high 33 percent year on year.

 

Elsewhere, Lebanon’s inflation slowed to 70 percent year on year in March, the first time it has been in double – rather than triple – digits since early 2020 due to de-facto dollarisation and lower demand for imports. That said, inflation in these economies is vulnerable to increases in the prices of global foods and energy (such as oil) due to their being net importers. If supply chain disruptions persist, it could result in central banks keeping monetary policy tighter with consequences for growth and employment. And in Morocco’s case, it could undermine the Bank Al-Maghrib’s intention to widen the dirham’s trading band and formally adopt an inflation-targeting monetary framework.

The strikes by Iran and Israel undoubtedly marked a dangerous escalation in what up to now had been a proxy war. Thankfully, policymakers across the globe have for the moment worked to de-escalate the situation. Outside the countries directly involved, the most significant spillover has been the disruptions to shipping in the Red Sea and Suez Canal. Many of the major global shipping companies have diverted ships away from the Red Sea due to attacks by Houthi rebels and have instead opted to go around the Cape of Good Hope.

The latest data shows that total freight traffic through the Suez Canal and Bab el-Mandeb Strait is down 60-75 percent since the onset of the hostilities in Gaza in early October. Almost all countries have seen fewer port calls. This could create fresh shortages of some goods imports, hamper production, and put upward pressure on prices.

For Egypt, inflation aside, the shipping disruptions have proven to be a major economic headache. Receipts from the Suez Canal were worth around 2.5 percent of GDP in 2023 – and that was before canal fees were hiked by 15 percent this January. Canal receipts are a major source of hard currency for Egypt and officials have said that revenues are down 40-50 percent compared to levels in early October.

The conflict is also weighing on the crucial tourism sector. Tourism accounts for 5-10 percent of GDP in the economies of North Africa and the Levant and is a critical source of hard currency inflows.

Jordan, where figures are the timeliest, show that tourist arrivals were down over 10 percent year on year between November and January. News of Iranian drones and missiles flying over Jordan imply that these numbers will, unfortunately, have fallen further.

In the case of Egypt, foreign currency revenues – from tourism and the Suez canal – represent more than 6 percent of GDP and are vulnerable. This played a large part in the decision to de-value the pound and hike interest rates aggressively in March.

The saving grace is that the conflict has galvanised geopolitical support for these economies. For Egypt, the aforementioned policy shift was accompanied by an enhanced $8bn IMF deal and, while not strictly bilateral support, the bumper Ras el-Hekma deal seems to have been accelerated as the pressure on the Egyptian economy ratcheted up. This is providing much needed foreign currency. At the same time, Jordan recently renewed its financing arrangement with the IMF for $1.2bn over four years.

Tunisia, however, is an exception. President Saied’s anti-IMF rhetoric and reluctance to pass reforms, such as harsh fiscal consolidation, in an election year, mean that the country’s staff-level agreement for an IMF deal is likely to remain in limbo. If strains on Tunisia’s foreign receipts are stretched, and the central bank and government continue with unorthodox policies of deficit financing, there is a risk that Tunisia’s economic crisis will become messier more quickly in the next year – particularly large sovereign debt repayments are due in early 2025.

James Swanston is Middle East and North Africa economist at London-based Capital Economics


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Debt Dependency in Africa: the Drivers

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In mid-April Ghana’s efforts to restructure its sovereign debt came to nothing, increasing the risk that it couldn’t keep up with its repayments. This is a familiar story for many African countries. Twenty of them are in serious debt trouble. Carlos Lopes argues that there are three factors driving this state of affairs: the rules of the international banking system; lenders’ focus on poverty reduction rather than development needs; and unfair treatment by rating agencies.

The debt situation in many African countries has escalated again to a critical juncture. Twenty are in, or at risk of, debt distress. Three pivotal elements significantly contribute to this. Firstly, the rules governing the international banking system favour developed countries and work against the interests of African countries.

Secondly, multilateral financial institutions such as the International Monetary Fund (IMF) and the World Bank focus on poverty alleviation. This is commendable. But it doesn’t address the liquidity crisis countries face. Many don’t have the necessary readily available funds in their coffers to cover urgent development priorities due to their dependency on volatile commodity exports. As a result governments turn to raising sovereign debt under conditions that are among the most unfavourable on the planet. This perpetuates a debt dependency cycle rather than fostering sustainable economic growth.

Thirdly, there’s the significant influence of biased credit rating agencies. These unfairly penalise African countries. In turn, this impedes their ability to attract investment on favourable terms. The convergence of these three factors underscores the imperative to implement effective strategies aimed at mitigating the overwhelming debt burden afflicting African nations. These strategies must address the immediate financial challenges facing countries. They must also lay the groundwork for long-term economic sustainability and equitable development across the continent.

By tackling these issues head-on, a financial environment can be created that fosters growth, empowers local economies, and ensures that African countries have access to the resources they need to thrive.

Rules of the banking game

The Bank for International Settlements is often called the “central bank for central banks”. It sets the regulations and standards for the global banking system. But its rules disproportionately favour developed economies, leading to unfavourable conditions for African countries. For instance, capital adequacy requirements – the amount of money banks must hold in relation to their assets – and other prudential rules may be disproportionately stringent for African markets. This limits lending to stimulate economic growth in less attractive economies.

The bank’s policies also often overlook developing nations’ unique challenges. Following the 2008/2009 financial crisis, the bank introduced a new, tougher set of regulations. Their complexity and stringent requirements have inadvertently accelerated the withdrawal of international banks from Africa.

They have also made it increasingly difficult for global banks to operate profitably in African markets. As a result, many have chosen to scale back their operations, or exit. The withdrawals have reduced competition within the banking sector, limited access to credit for businesses and individuals, and hampered efforts to promote economic growth and development.

The limitations of the new regulations highlight the need for a more nuanced approach to banking regulation. The adverse effects could be mitigated by simplifying the regulations. For example, requirements could be tailored to the specific needs of African economies, and supporting local banks.

Focus on poverty alleviation

Multilateral financial institutions like the IMF and the World Bank play a crucial role in providing financial assistance to many countries on the continent. But their emphasis on poverty alleviation and, more recently, climate finance often overlooks the urgent spending needs. Additionally, the liquidity squeeze facing countries further limits their capacity to prioritise essential expenditure. Wealthy nations enjoy the luxury of lenient regulatory frameworks and ample fiscal space. For their part African countries are left to fend for themselves in an environment rife with predatory lending practices and exploitative economic policies. Among these are sweetheart tax deals which often involving tax exemptions. In addition, illicit financial practices by multinational corporations drain countries of their limited resources. Research by The ONE Campaign found that financial transfers to developing nations plummeted from a peak of US$225 billion in 2014 to just US$51 billion in 2022, the latest year for which data is available. These flows are projected to diminish further.

Alarmingly, the ONE Campaign report stated that more than one in five emerging markets and developing countries allocated more resources to debt servicing in 2022 than they received in external financing. Aid donors have been touting record global aid figures. But nearly one in five aid dollars was directed towards domestic spending hosting migrants or supporting Ukraine. Aid to Africa has stagnated.

This leaves African countries looking for any opportunities to access liquidity, which makes them a prey of debt scavengers. As noted by Columbia University professor José Antonio Ocampo, the Paris Club, the oldest debt-restructuring mechanism still in operation, exclusively addresses sovereign debt owed to its 22 members, primarily OECD countries.

With these limited attempts to address a significant structural problem of pervasive indebtedness it is unfair to stigmatise Africa as if it contracted debt because of its performance or bad management.

Rating agencies

Rating agencies wield significant influence in the global financial landscape. They shape investor sentiment and determine countries’ borrowing costs. However, their assessments are often marked by bias. This is particularly evident in their treatment of African countries. African nations argue that without bias, they should receive higher ratings and lower borrowing costs. In turn this would mean brighter economic prospects as there is a positive correlation between financial development and credit ratings. However, the subjective nature of the assessment system inflates the perception of investment risk in Africa beyond the actual risk of default. This increases the cost of credit.

Some countries have contested ratings. For instance, Zambia rejected Moody’s downgrade in 2015, Namibia appealed a junk status downgrade in 2017 and Tanzania appealed against inaccurate ratings in 2018. Ghana contested ratings by Fitch and Moody’s in 2022, arguing they did not reflect the country’s risk factors. Nigeria and Kenya rejected Moody’s rating downgrades. Both cited a lack of understanding of the domestic environment by rating agencies. They asserted that their fiscal situations and debt were less dire than estimated by Moody’s.

Recent arguments from the Economic Commission for Africa and the African Peer Review Mechanism highlight deteriorating sovereign credit ratings in Africa despite some posting growth patterns above 5% for sustained periods. Their joint report identifies challenges during the rating agencies’ reviews. This includes errors in publishing ratings and commentaries and the location of analysts outside Africa to circumvent regulatory compliance, fees and tax obligations.

A recent UNDP report illuminates a staggering reality: African nations would gain a significant boost in sovereign credit financing if credit ratings were grounded more in economic fundamentals and less in subjective assessments. According to the report’s findings, African countries could access an additional US$31 billion in new financing while saving nearly US$14.2 billion in total interest costs.

These figures might seem modest in the eyes of large investment firms. But they hold immense significance for African economies. If credit ratings accurately reflected economic realities, the 13 countries studied could unlock an extra US$45 billion in funds. This is equivalent to the entire net official development assistance received by sub-Saharan Africa in 2021. These figures underscore the urgent need to address the systemic biases plaguing credit rating assessments in Africa.

Next steps

Debates about Africa’s debt crisis often lean towards solutions centered on compensation. These advocate for increased official development aid, more generous climate finance measures, or the reduction of borrowing costs through hybrid arrangements backed by international financial systems. These measures may offer temporary relief. But they need to be more genuine solutions in light of the three structural challenges facing African countries.

Carlos Lopes,a Professor at the Nelson Mandela School of Public Governance, University of Cape Town,  is  the Chair of the African Climate Foundation’s Advisory Council as well as its Chairman of the Board. He is also a board member of the World Resources Institute and Climate Works Foundation.

Courtesy: The Conversation


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