04 Oct 2020

Minister of Finance and Economic Development, Dr Thapelo Matsheka has called for heads of International Finance Institutions (IFI’s) to pronounce their support for revision of conditions governing access to concessional resources to avoid smaller states falling into unsustainable debt.

Speaking in a virtual Commonwealth Small States Finance Ministers meeting on Friday afternoon, Dr Matsheka said the IFIs should recognise and integrate vulnerability into their financial and operational frameworks to address COVID-19 and should consider gaps within the current global financing system.

He added that the IFIs should facilitate Commonwealth’s poorest, least developed, small and other vulnerable countries’ access to COVID-19 relief funds.

“For Botswana as an economy heavily reliant on diamond trade and tourism revenue, the COVID-19 pandemic has hit export earnings, government revenues and GDP. We are currently implementing our Economic Recovery and Transformation Plan, which inevitably involves substantial borrowing. 

In that regard we are looking at the IFIs for assistance while ensuring that our debt remains sustainable,” he said.

He said apart from the tragic loss of human lives the pandemic was expected to result in significant declines in world trade and flows of FDI that would have substantial effects on economic activity and livelihoods, which meant that the international development agenda was reset.

Dr Matsheka said there was need to scale up resources needed to tackle both the health, social and economic impacts of the pandemic and the longer term recovery measures once the crises abated.

“These resources will come from various sources including concessional aid, but almost all countries will also need to incur additional debt, whether from domestic or international sources, this in turn raises questions of sustainability,” he added.

Dr Matsheka said with the current environment small states were particularly vulnerable as their economies were less diversified than large economies.

He said their financial and capital market were underdeveloped making them more dependent upon access to external sources of finance.

The minister noted that the post COVID-19 recovery required access to sustainable financing.

“We need to address the adequacy of the international financial architecture and the roles of the international and regional financial institutions. While IFIs have introduced new financing programmes to assist developing countries deal with the impact of COVID-19, concessional loans tend to be only available to low income countries and may not be adequate to address particularly needs of small states more generally,” he said.

Dr Matsheka said there was need for a comprehensive assessment of small states vulnerability through and effective vulnerability index as well as financing criteria that recognised small states special circumstances.

He said, given historical legacies of international development financing, it was imperative that the mechanisms and institutions funding global, national and local responses to COVID-19 were subjected to robust public scrutiny to ensure accountability in the use of resources and more importantly that the terms of such funding do not exacerbate the social, economic and ecological challenges already faced by developing countries.

“Over the years financing conditions imposed by the IFIs had at times led developing countries into unsustainable debt and have also excluded some deserving economies which are disqualified due to their level of their per capita income. It is quite evident that structural and macroeconomic conditionalities such as fiscal austerity, trade liberalisation, reforms and privatisation continue to be features of adjustment programmes tied to financial packages,” he said.

Dr Matsheka said the global response of the international community would not succeed if not matched by frameworks of policy accountability and affordability. 

He said while it was important to advocate for immediate relief and support, it was important to request for a financing system for all as determined by various economic needs and debt sustainability.

The Friday meeting was a precursor to the Commonwealth Finance Meeting which will also be held virtually under the chairmanship of Dr Matsheka on Wednesday. ends