By Kenton X. Chance
NASSAU, Bahamas (CMC) – Governor of the Central Bank of Barbados, Kevin Greenidge, Wednesday called for reform of the global financial architecture, saying credit rating agencies have a “natural bias” against smaller economies such as those in Africa and the Caribbean.
Greenidge said he had once been informed by a rating agency that it would not upgrade Bridgetown’s credit rating because the economy “wasn’t diversified enough” and was “vulnerable to climate change.
“So if we get with one voice and start to speak to these things, call for reforming the way the rating agencies view and assess our position, including debt, we will then make a difference,” Greenidge told a panel discussing “Navigating Economic Transformation in a Polycrisis World: Strategies for Global Africa” as part of the three-day 31st Afreximbank Annual Meeting (AAM2024).
The meetings are being held in the Caribbean for the first time and are taking place through Friday along with the Third AfriCaribbean Trade and Investment Forum (ACTIF2024).
Delivering the keynote address for the panel, Senior Lecturer in economics at the International Institute of Social Studies of the Erasmus University of Rotterdam, Professor Jeffery Sachs, said that the Berlin conference that divided Africa among colonial powers was deleterious for the continent.
“It is deleterious for risk premium, it is deleterious for the scale of investment and industry and it is definitely deleterious for geopolitics,” Sachs said, adding “you cannot operate in this world as a small country.
“Even the small countries that are successful are part of somebody’s world,” he said, noting that the African Union is the 21st member of the group of the world’s 21 largest economies, and that Africa has a seat at the front table and it needs to assert its seat.
“The global financial architecture needs fundamental change,” Sachs said, adding that the “mechanical formulas” used by agencies such as Moody’s and Fitch rate smaller economies lower regardless of their growth prospects.
He called on the continent to “renegotiate how debt is evaluated because it’s all wrong analytically.
“The IMF and the World Bank need big fixing and it’s possible, with a strong voice and a strong analytical approach,” Sachs said.
Greenidge said the Caribbean, as part of Global Africa, is the continent’s 55th state, adding that Afreximbank is playing the role of filling the physical distance.
“We in the Caribbean are living the climate crisis every day,” Greenidge said, adding that the region has sought to deal with this by building resilience through mitigation and adaptation.
He said adequate financing is a constraint for Barbados, noting that this is financing “for a problem that is immediate upon us but has a long return in terms of building climate change.
“We are calling for financing that is cheaper at longer term, as opposed to short term, which really impacts … debt sustainability, etc.,” he said.
Greenidge noted the Bridgetown Initiative in which Barbados is leading the call by small developing countries, for increased concessional financing to developing countries to help with the financing, such as rechannelling of the Special Drawing Rights (SDRs), which he described as “the IMF currency”.
However, the IMF says the SDR itself is not a currency but an asset that holders can exchange for currency when needed. The SDR serves as the unit of account of the IMF and other international organisations.
Greenidge, a former IMF employee, noted the lack of response for the global financial sector to the calls of developing countries to reform the financial architecture.
“This is what Jeffrey, I think, is calling for,” he said, referring to Sachs’ comments.
“So if for example we all gather together and support the Bridgetown Initiative which will benefit everyone, each of our country and getting financing to us, … we cannot be ignored.
“If you all get together, one voice and support things like the Bridgetown Initiative and what we are doing and calling for it, because it doesn’t matter how grand the plans are, there are still limits to what Afreximbank can do on its own.
“There are limits to what individually you can do but if collectively we can get a rechannelling of those funds that has been promised, then, but one voice, Africa global Africa voice, I believe we can make a difference,” Greenidge added.
He noted that he has worked with the IMF, adding, “this perhaps is one of the first times in our history where the world’s and the global financial architecture and the architects of it are starting to listen.
“The IMF, the World Bank, and those started listening and say maybe we need to start looking at things a little differently,” he said.
He said some 650 billion SDRs were pledged before.
“How many of that has flowed into small developing states? Not much. And so, one voice, I think, is what Jeffrey’s saying in terms of speaking up and calling for these reforms to the global financial architecture,” Greenidge said.
“And those reforms are absolutely necessary. Another example is calling for reforms with respect to the rating agencies and they way they view us in terms of there’s an inherent bias against developing countries,” the Governor of the Central Bank of Barbados said.
Other members of the panel included John A. Rolle, Governor of the Central Bank of the Bahamas and Professor Yemi Osinbajo, former Vice President of Nigeria.
The annual meetings and grade forum are being held under the theme “Owning Our Destiny: Economic Prosperity on the Platform of Global Africa”.