G-24 director: No organisation knows your economy better than you

Iyabo Masha is the director and head of secretariat at the Intergovernmental Group of Twenty-Four - the G-24 - established in 1971 as a representative grouping of developing countries across Africa, Asia, Latin America and the Caribbean. The G-24 coordinates the positions of developing countries on international monetary and development finance issues to ensure their interests are represented in International Monetary Fund (IMF) and World Bank negotiations. From 2019-2022, Masha was a member of Nigeria's Presidential Economic Advisory Council, which directly advises the president on economic policy. Prior to that, she worked on a range of countries at the IMF in Washington DC, negotiating IMF lending programmes and developing non-programme policies for emerging market and low-income economies in Africa and Asia. She is in conversation with with Michael Nwadike. What are the key considerations central banks need to look at before either deciding to increase or lower the benchmark interest rate? Well, first of all, we have to understand that the main mandate of a central bank is to fight inflation which helps to promote economic growth, employment generation, and all the other indicators. You can have a situation where the central bank has a disinflation policy and disinflation is progressing on its own, then an exogenous shock, something that is completely what should a central bank do under the circumstances? Because oil is the source for more than 200 industrial products in the world, any energy shock, if not properly handled, could seep into the larger economy. So, to then go back to your question, at what point should a central bank know that it is time to intervene by maybe increasing the interest rate to bring inflation down? I think in this particular instance, which is driven by a completely exogenous shock, a sudden rise in crude oil prices, a central bank has to decide whether this is going to be a sustained rise or if it's just going to be temporary. If it's going to be temporary, the best thing is not to increase the interest rate because that also complicates other things. But if the judgment is that this is going to continue to snowball and it could lead to increasing wage and affect growth, then that's the point in which a central bank should now intervene and hike interest rates. And that is what is happening in many of the central banks that we work with. The important thing is that the central banks have so many data points at their disposal. They know when inflation is just affecting prices or when it is getting to economic growth. So, they can use those data to come to that judgment. There is also the issue of high cost of borrowing, especially for emerging markets and developing economies. What do you think should be done to tackle that problem? Indeed, in the private market, developing countries pay interest rates that are sometimes even three or four times more than that of advanced economies. We have to make a distinction between what is happening in the private market and the cost they pay to maybe World Bank, IMF and bilaterals. The G20 presidency under South Africa commissioned a study on the high cost of borrowing, in which they also came up with different recommendations. The way credit agencies frame their methodology is just based on income. But if they take into consideration, the long-term potential of an economy or the endowments of an economy, then they may be able to rate the economy in such a way that the interest rates will be lower. That's one of the areas in which we are engaging them on. What role should the IMF, or World Bank play in these scenarios? If they are able to provide more financing to the countries, demand for loans from the private market creditors will reduce. But these organisations' resources are not adequate for developing countries. If they are able to get the financing from the World Bank, the IMF, it will come at a much lower rate. Some of them are actually at zero interest rate. The World Bank and the IMF have some programmes, like the policy-based guarantee, where they will provide a guarantee for the loan that a country is taking in the private market. One country that used it successfully last year is Cote d'Ivoire. What is the G-24 position on trade, protectionist policies, and unilateral sanctions by developed economies. What we call unilateral actions, which could be sanctions, or tariffs, or non-tariff barriers are protectionist in nature, and they are very disruptive to the international trade system. So what we are calling for is that countries should resolve whatever issues they have on the trade side within a multilateral setting like the World Trade Organisation, not to take the laws into their own hands. And we feel it removes a lot of uncertainties, and it allows things to work out more systematically without the disruption of just having different types of tariffs and protectionist policies. The Nigerian banking sector completed recapitalisation in March this year but the funds they raised now are almost like what they raised about 10 years ago in dollar terms. What's your take on that? You raised an important point that in dollar terms, the capital base of the banks, even though it is a higher level of capitalisation in Naira terms, it's either lower or about the same as it was back then. So, that doesn't mean that the banks cannot do better. They can do better and the regulators, the central bank can do better. Now, usually when a bank has a higher capital base, it means it can lend out more money. And by lending out more money to critical sectors, those sectors in the course of producing more goods will hire more people. And so, you increase employment, the companies are going to pay taxes, you increase tax revenue. So, it's a win-win for the economy. But the banks themselves have to be more focused on lending money to small and medium scale enterprises. Those are the major sources of employment and economic growth in many countries. So, a framework that requires them to increase access to credit for that particular sector, will definitely see the results in economic growth, in employment and everything. Nigeria has nearly a $100bn yearly infrastructure funding gap. How do we bridge this gap? Infrastructure is a very long term investment and in most cases the return is low and that's why at least 90-99% all over the world, major infrastructure are public sector projects. The private sector would need much higer returns and that is part of the challenges you are seeing in the energy sector. When you look at the data, you see that 30 to 40 years ago, most of the major infrastructure projects were funded by the World Bank. The Kanji Dam hydro power infrastructure for example, some of the ports, rail lines were funded by the World Bank and that applies to many other countries. But around 20-25 years ago, the World Bank decided to get out of infrastructure financing and that is one of the reasons why some countries started going to the private sector. Part of our engagement with the World Bank is how the Bank should return to financing infrastructure. Some of the major projects that the World Bank has for Africa are energy projects, that was launched last year. The discussion has started. It may take a long time before results begin to show but it is already in the works and hopefully as the World Bank moves back to infrastructure financing, then we can begin to see the results. What would be your message for Africans? The message for Africa is that the goal for developing countries should be three-fold: one is to take advantage of funds available within the multilateral system, that is the World Bank, the International Monetary Fund and their own regional banks. Number two is the opportunity available bilaterally. Overseas support is not as much as it used to be, but some countries are still providing assistance. So, they should take advantage of that and finally, which is probably the most important, is that they should focus a lot on domestic policies. Domestic policies are absolutely critical because no international organisation can know your economy better than you do. The partnership is important but the countries should be at the drivers' seat.