Mobilising additional financial resources rapidly and at scale and lesson-learning cannot be handled by every country on their own, especially those in sub-Saharan Africa. These usually have little room for manoeuvre – including borrowing in capital markets and expanding tax revenues. A debt crisis was looming even before the COVID-19 pandemic struck. The funding injections needed to handle the health emergency response and to mitigate the consequences of very near (or already ongoing) economic recessions brought on by the COVID-19 crisis have reached a large scale. Constant and rapid learning and information sharing are also critical to address the root causes of the pandemic, reduce transmissions and identify more effective treatments.
This is why international cooperation from bilateral and multilateral donors matters. By providing finance at scale and at speed, international cooperation will help to protect individual countries’ health and livelihoods in the short-term, but will also reduce the scale of the investments needed later to boost their economic recovery. International aid and development finance are the only flows that can be counter-cyclical during crises because other financing sources such as tax revenues, foreign direct investment and remittances, tend to contract as growth rates fall.
The scale and speed of response from bilateral and multilateral donors
The scale of the response of the international community, however, has been variable – at least so far. Multilateral development banks have responded to the emergency with far greater financial packages (at least in terms of clear commitments) than bilateral donors. This is somehow unsurprising given their global and regional mandates for economic development, greater firepower in their balance sheets and the ability to re-programme funding, also by frontloading commitments (see Figure 1).
The joint efforts of multilateral and regional development banks amount to more than $ 200 billion for emerging and low-income countries (as a matter of comparison, official development assistance is about $ 150 billion each year). For example, in the next 15 months, the World Bank Group is expected to mobilise commitments of $ 160 billion for support packages (at the time of writing 100 countries have applied for them, 39 from sub-Saharan Africa, which is equivalent to more than 80% of countries in the region). Again, to put this into perspective, total annual World Bank Group commitments across all countries and sectors stood at $ 92 billion in 2019.
As of early April, the European Union (EU) committed to €15.6 billion ($17 billion) to help partner countries to address the immediate health crisis and resulting humanitarian needs. This was done by strengthening partner countries' health, water and sanitation systems as well as their research and preparedness capacities to deal with the pandemic. The EU is also supporting countries to mitigate the socio-economic impact of the pandemic, the largest chunk of which ($ 3.5 billion) was donated to Africa.
Figure 1 Donor commitments on COVID-19 emergency and recovery response as of 30 April 2020, all countries, USD billion
Source: ODI Donor tracker as of April 30 2020. Notes * include assistance to member and non-member states. It excludes IMF support.
Multilateral development banks have not only reacted at scale, but their responses have been far quicker than those of bilateral donors. This is again unsurprising given the fact that their budgets are more flexible than those of governments. On the other hand, bilateral donors had to handle competing priorities at home at the early stages of the response. While the first actors reacting to the emergency were the UK, the US and Canada as early as February, the response became largely driven by multilateral and regional development banks by March.
While it is challenging to map the sectors (and relative weight) of intervention at this early stage, most multilateral development banks have tackled all three areas of interventions of the crisis response: balance of payment/macroeconomic support measures; structural interventions on trade, the private sector and the economy in general; programmes in social and health sectors. Unsurprisingly, the focus of bilateral donors has largely been on the health emergency response. But previous commitments should be kept, as should other projects that could boost aggregate demand for economic recovery. Some donors are allocating resources towards vaccine development as global public goods. But country-level funding and support to global public goods should go hand-in-hand with and not be raised at the expense of the other.
Suspension of debt service payments
Under the aegis of the G20, in April 2020 bilateral donors committed to suspend debt service payments among the poorest countries, upon their request. These include countries borrowing at concessional terms from the World Bank and countries classified as Least Developed. Within those categories the vast majority of sub-Saharan African countries, but not all, are included. However, as of 2018, only about 25 % of external debt to sub-Saharan African was owned by official bilateral donors, the rest by multilateral organisations (32%) and largely by private commercial creditors and bond holders (42%). G20 members asked the private sector to offer comparable terms and for multilateral development banks to explore options to do so.
The main challenge for multilateral development banks is that debt payment suspension should not affect their capital adequacy, lowering their credit rating and in turn compromising their affordable lending. At the time of writing, coordination is ongoing but no announcements have been made so far. While a few sub-Saharan African countries have already applied for debt payment suspensions (across all regions, 36 applications were made), others have waited so as not to compromise their credit ratings when borrowing in international capital markets.
Assess new and additional commitments going forward
Despite the fact that announcements were made at scale and rapidly, in the coming months analyses should review the extent to which commitments were really additional. Right now, it is difficult to gauge what constitutes new support, what is considered a reprioritisation of previous commitments or the cancellation of debt obligations that might have already been in distress.
Information on how different national governments and international organisations are scaling-up financing for the crisis response must be as transparent and easily understood as possible if states and multilateral/regional development banks are to be held to account. This is the only way we would be able to assess to what extent the response of the international community to countries in sub-Saharan Africa (and elsewhere) has really proven to be at scale to address the emergency and to support the recovery needed as a result of the COVID-19 crisis.