The International Monetary Fund (IMF) has disclosed the COVID-19 interest rate on loans as well as loan terms for countries in Sub-Saharan Africa for the sake of transparency and accountability.
Last Thursday, the IMF again urged countries that are receiving emergency financing to combat the COVID-19 economic fallout, many of them in Sub-Saharan Africa, to spend the money but “keep the receipts” for accountability and transparency, especially because the money would be paid back.
“You might have heard the Managing Director, Kristalina Georgieva, and others at the IMF say we are urging countries to “keep the receipts”. Spend the money, but keep the receipts, and that means, you know, ensuring that the resources are properly used,” Mr. Gerry Rice of the Communication Department at the IMF said at a press briefing from Washington D.C. on Thursday while providing an update on the state of the global economy.
Mr. Rice said at least 59 countries had received approval for emergency financing to combat COVID-19 economic fallout as of Wednesday May 20, 2020.
While it’s often very well detailed the amount of loan money being given to countries in Sub-Saharan Africa to mitigate the effects of COVID-19 economic crisis and rescue their economies, it’s often not obvious, at least in the public consciousness, how much would be repaid and when.
Following an inquiry by TODAY NEWS AFRICA‘s Simon Ateba on Thursday, the IMF disclosed that the interest rate on COVID-19 loans was actually very low, 1.05 percent.
The IMF added that repayment would be between 3 ¼ and 5 years.
“As for the interest rate on these disbursement under the RFI and the RCF, the interest rate is very low, 1,05 percent, repayable and the repayment is 3 ¼ and 5 years,” an IMF official told TODAY NEWS AFRICA in an emailed statement in Washington DC.
The official noted that the IMF is using two financial instruments – The Rapid Credit Facility (RFC), and the Rapid Financing Instrument (RFI) – to facilitate rapid borrowings by countries in need of liquidity.
The low interest rate means the $3.4 billion loan the IMF granted Nigeria in April would be repaid within 5 years and Africa’s most populous country would pay back about $3.57 billion from the $3.4 billion it was given.
This translates roughly into 0.2 billion in interest, or ($200 million) or (78 billion naira) in interest.
In other words, Nigeria would repay the $3.4 billion loan it was granted plus about 78 billion naira in interest.
Some have questioned the debt being piled up by countries who are getting loans from the IMF and other financial institutions to deal with the COVID-19 emergency.
What will be the result of this new debt? Is there another way out that would actually construct productive medical infrastructure in Africa, expand education so the “credit” needed to deal with the crisis leaves behind the means of production to dissolve the debt and keep people alive and healthy now, and in to the future? are some of the questions that have been raised in several reports across the continent.
Alexander Hamilton concluded his 1790 Report on Public Credit with this caveat: “Persuaded as the Secretary is that the proper funding of the present debt will render it a national blessing, yet he is so far from acceding to the position, in the latitude in which it is sometimes laid down, that “public debts are public benefits,” a position inviting to prodigality and liable to dangerous abuse, that he ardently wishes to see it incorporated as a fundamental maxim in the system of public credit of the United States, that the creation of debt should always be accompanied with the means of extinguishment. This he regards as the true secret for rendering public credit immortal. And he presumes that it is difficult to conceive a situation in which there may not be an adherence to the maxim. At least he feels an unfeigned solicitude that this may be attempted by the United States, and that they may commence their measures for the establishment of credit with the observance of it.”
In fairness, the 1.05 percent interest rate on the loans for countries in Sub-Saharan Africa is not high but the problem comes when the money is not well invested and countries default on payment. When that happens, the interest rate skyrockets and may become more than the original loan itself over many years or decades.
NOTE: You can find the information on the number of Sub-Saharan African countries that have received emergency assistance from the Fund as of now as well as the amounts here