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By Ryan Kirby, IMF/WB Fellow 2023
The International Monetary Fund & World Bank (IMF/WB) annual meeting hosted in Marrakech this year issued a snapshot into the priorities and policies of both institutions looking to the future. Hosted in Morocco, much of this year’s discourse was centred around Africa; both as an emerging and developing economic opportunity, but also as a vibrant and young population.
Much was made of the fact that by 2050, one in four people on Earth will be African (World Bank, 2019). With this suspected growth comes unbounded opportunities for economic and human capital development. Therefore, it is fitting that much of the discourse that materialised from this forum consisted of issues concurrently afflicting African states as barriers to achieving this growth. Those being; fiscal debt levels, public investment crowding out and faltering economic resilience.
Debt servicing & Development
A poignant discussion throughout the course of the annual meetings pertained to the requisite levels of serviceable public debt held by a number of African countries. 60% of the poorest countries on Earth are at high risk of debt distress or already in distress(World Bank, 2022). A significant proportion of these countries are situated on the African continent. Globally, 59 countries have debt levels that exceed 60% of GDP (United Nations, 2023). Cumulatively, this context shapes the discourse of fiscal restriction expressed by the World Bank and IMF. The constricting of fiscal allocations to servicing public repayments has meant real fiscal allocations to development have been constrained and increasingly reliant on the World Bank as a means of funding.
Therefore, one of the core debates of this annual meeting was; “what avenue will deliver domestic development?” Further, “what will reduce the degree to which states are reliant on the World Bank as a means of delivering funds for both structural development (infrastructure and resilient financial institutions etc.) and human capital development (education programs and training for upskilling)?”
The resultant debate has placed the role of private investment at the front and centre for filling the requisite investment gap to ensure domestic development across the African continent. This, in and of itself, can be criticised as an ineffectual means for delivering domestic growth. The absence of strong regulatory bodies across the African continent as a means of investment assurance, acts as a structural impediment to private investment servicing development.
Public vs Private Investment – The Big Debate
As articulated above, much of the discourse situated around the reduction of public expenditure as essential, and the role of the private investment as a key component to delivering the prospective growth of the African continent. This potential growth is concurrently unrealised and hampered by structural impediments such as the instability of domestic financial markets.
Rhetoric from the World Bank and IMF illustrates an analysis based on requisite resource constraints. President of the World Bank, Ajay Banga, articulated the bottom line for the World Bank as a means of allocative spending, which is around 200 billion USD. (Ajay Banga, 2023). Some of the issues affecting African Nations are in the trillions of dollars. As articulated, both the World Bank and the IMF do not have the capability to correct all of the issues affecting the continent and therefore should not be viewed as a sole solution. This leads to the logical thought progression of, if the World Bank & IMF do not have the funds, and public expenditure is increasingly constrained with debt servicing then logically, states should look to private investment as a means of fueling development.
The quiet talk however, concerns investment attraction as a contrasting point to the rhetoric of the IMF/WB. Given the existing structural impediments to development within some African nations as a derivative of instability whether it be political, social or financial, the attraction of private investment is likely to be limited as returns on investment (ROI) is likely to be comparatively lower than investments in developed nations. Nations with both strong regulatory frameworks and also steady financial markets.
Austerity & Cuts – a last option.
The resulting discourse is cumulative in the perspective that the public service is bloated and crowding out potential private investment avenues. This can be exemplified in the case study of Tunisia, in which the public sector wage bill constitutes 42.2% of budget allocations for 2023 (Alice Pesavento, 2023). The World Bank itself articulates budgetary allocations for public sector wages should be targeted at around 30% (Ajay Banga, 2023). The World Bank and IMF therefore on the proviso of recommendations to realising economic growth have consistently articulated a need for cuts and austerity as a means of improving domestic budgetary balance sheets and promoting room for private sector investment.
This in theory would enable more fiscal stimulus to be allocated to developmental projects against the backdrop of growing debt servicing allocations. In reality this is only part of the issue, a more consistent approach would be to lobby wealthy nations to increasingly forgive debt at the same time as increasing their contributions to structures such as the World Bank and International Monetary Fund.
This approach would enable developing nations a degree of ‘breathing room’ in their budgetary allocations as the composition of allocations to debt servicing is effectively reduced. This would have the effect of exhausting the pressure on debt constrained countries to cut fiscal allocations to the public service by means of reducing the effective allocation these nations have to pledge to debt management.
Reflections & Takeaways
The annual IMF/WB meetings in Marrakech shed light on the role of international institutions as a means of fostering growth to developing nations through measures of monetary allocations and debt servicing payments. Whilst I can critique the neoliberal orientation of these institutions as ineffectual in promoting domestic investment, I can also appreciate the role they have played in fostering economic growth by facilitating both human and structural capital in domestic development..
Fundamentally, the IMF/WB have been able to effect change for the better and improve the standard of living in a wealth of nations through their operations. However, I am less certain of the rhetoric that predisposes cuts and austerity whilst championing private sector investment as the avenue for development moving forward.
References:
Alice Pesavento, 2023. Budget 2023: What if Tunisia had only 100 Dinars in the State Treasury? Inkyfada. https://inkyfada.com/en/2023/03/30/budget-2023-100-dinars-state-treasury-tunisia/
Ajay Banga, 2023. Address to The World Bank & International Monetary Fund Annual Meeting, Marrakech 2023.
World Bank, 2022. Debt-Servicing payments put biggest squeeze on poor countries since 2000. World Bank. https://www.worldbank.org/en/news/press-release/2022/12/06/debt-service-payments-put-biggest-squeeze-on-poor-countries-since-2000
World Bank, 2019. World’s population will continue to grow and will reach nearly 10 billion by 2050. World Bank. https://blogs.worldbank.org/opendata/worlds-population-will-continue-grow-and-will-reach-nearly-10-billion-2050
United Nations, 2023. A World Of Debt: A Growing Burden To Global Prosperity. UNCTAD. https://unctad.org/publication/world-of-debt
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The views and opinions expressed by Global Voices Fellows do not necessarily reflect those of the organisation or its staff.