30 May 2014

Mozambique: IMF Urged to Reform Debt Limits Policy

Maputo — African finance ministers and central bank governors on Friday urged the International Monetary Fund (IMF) “to move forward expeditiously with the reform of its debt limits policy”.

In a declaration issued at the end of a two day conference in Maputo entitled “Africa Rising: Building for the Future”, the ministers stressed that the development challenges in Africa “notably the large infrastructure gap”, called for a “more flexible” debt limits policy from the IMF.

The declaration said that IMF general director Christine Lagarde and her team “agreed it will be important that the policy provides for debt limits that are tailored to individual country circumstances. The policy should seek to accommodate financing for critical investment, while maintaining hard won gains on debt sustainability”.

There was agreement “that building capacity in national debt management offices is a priority to ensure optimal use of debt financing and its alignment with long term fiscal and macro-economic stability”.

Reform of the debt limits policy “should seek to provide countries with enhanced flexibility in programme design to utilize a wider range of financing options”.

The declaration also stressed agreement on strengthening “the partnership between the Fund and its African membership and responding to the evolving needs of the continent”.

“Policy dialogue and capacity building”, the declaration pledged, “will reflect the ambitious agenda aimed at upholding macro-economic stability with policy actions designed to foster structural transformation and sustain strong and inclusive growth”.

The declaration promised that there will be no one-size-fits-all approach: instead “the engagement will take into account the different needs of the African membership, ranging from countries facing challenges of fragility and conflict, to middle-income and emerging market economies”.

The declaration admitted that growth “has often been accompanied by widening income inequality and has not generated sufficient employment opportunities for a young and growing population”.

It claimed that the solution lies in “the creation of an enabling environment for a vibrant private sector, which includes the development of deeper financial markets and profitable investment opportunities”, and “continued public investment in growth-enhancing infrastructure, most notably in transport and energy”.

Both of these approaches “will require building capacity and institutions, investing in human capital development and strengthening public sector efficiency”.

Turning to states wracked by conflict, the declaration stressed “the overriding importance of peace and security for sustained economic and human development”. The Ministers and Central Bank Governors, it added, “underlined the importance of addressing political economy challenges, including by identifying quick wins and protecting the most vulnerable”. But it made no attempt to explain what a “quick win” might look like in a conflict situation.

The ministers told the IMF “in an environment of weak institutional capacity, or recovering from conflict, economic policy implementation inevitably takes more time, which would need to be reflected in IMF advice, policies and practices”.

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