Coronavirus: IFC fires out $8 billion fast-track financing – for starters

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Virginia Furness
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The IFC’s Africa and Middle East head, Sérgio Pimenta, tells Euromoney that a fast response and private-sector support are essential in the battle against Covid-19.

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On the frontline of the fight against Covid-19, the International Finance Corporation (IFC) is working against the clock to ensure jobs and businesses are kept afloat as developing countries face one of the worst healthcare and economic crises in history.

Sérgio Pimenta, IFC’s vice president for the Middle East and Africa, tells Euromoney via video link from Washington that the IFC’s first priority is to ensure the rapid disbursement of its $8 billion fast-track financing package to 300 of its existing clients that most need support.

“The goal of the $8 billion financing is really to help companies going through this difficult time and to preserve jobs,” he says.

The IFC’s response has four components, with $2 billion allocated to four separate response facilities, which range from direct funding via loans and equity investments to vulnerable companies, to trade finance support and working capital for emerging market banks.

Immediate focus

The immediate focus is to help existing clients, says Pimenta, because they are in a better position to absorb the financing.

In the health sector for example, the IFC’s facilities will cover clinics, medical equipment and pharmaceutical companies, helping to meet the need for additional equipment globally and ensuring supply chains are functioning.

“Whether masks or ventilators, a lot of this supply comes from China, so it is important to support companies diversifying sources of equipment,” he says.


[We need] solutions that are sustainable, that help not just in the first weeks of the crisis but in the months beyond 
 - Sérgio Pimenta, IFC

The IFC is also seeking to stem an expected unemployment crisis through its support to small and medium sized enterprises via emerging market financial institutions.

“Then the priority after that is to roll out additional funding for new companies, in particular in the sectors where the impact will be very strong, whether helping the health sector or tourism, agribusiness, companies which create a lot of employment in Africa,” he says.

As governments implement curfews, social distancing and focus on the health sector, Pimenta says it is essential for the IFC to look towards the longer-term impact of the virus and to ensure it continues to support Africa.

“[We need] solutions that are sustainable, that help not just in the first weeks of the crisis but in the months beyond to make sure we are here supporting economies to recover,” he says. “This is something we can prepare now. We are all working on that.”

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Sérgio Pimenta,
IFC

The IFC has not put its existing projects on hold, although Pimenta acknowledges that some will be difficult to deploy in the circumstances. Some new projects have been signed in recent days.

The IFC is in strong growth mode and has increased its presence from 22 to almost 30 offices in sub-Saharan Africa.

It has been working hard to gain approval for a capital increase from its shareholders that will enable it to double its annual investment programme to $48 billion by 2030 and triple its annual investments in the world’s poorest and most fragile countries.

On March 28, the US approved a capital increase for the IFC of $5.5 billion, which the IFC says should enable it to work with other shareholders to finalize their funding for the capital increase, endorsed by IFC’s shareholders in 2018.

Development finance institutions have come under fire for the small share of their financing that actually goes to low-income countries. In 2018, for example, the share of IFC commitments to International Development Association countries and fragile states was only 20%.

Pimenta recognizes this. “This pandemic shows again the need to be even more active in fragile countries,” he says.

With much of the global focus on countries where the pandemic has been the highest in terms of number of cases and number of deaths, some of the smaller, more fragile countries risk being overlooked.

“We really need to think about the markets that have the most underdeveloped health systems. How are they going to cope? It is important to act now in those markets,” he says.

Private sector

Multilateral development banks (MDBs) have been quick to respond to the crisis and the World Bank group has committed to spending $160 billion over 15 months, but Pimenta says more support from the private sector is essential.

The IFC is a leading mobilizer of third-party resources for projects and specializes in crowding-in private finance. “There is a huge role for the private sector,” he says. “This is the moment not to forget it, this is the moment to say we do need to leverage the private sector to its maximum.”

But the IFC is facing new challenges with mobilizing these sources of funding. Teething problems with remote working means that many of its clients are having simple issues like difficulty paying employees or closing funding on some facilities. And aside from these practical issues, private-sector companies are unsure how best to deploy funds.

“We have had many conversations with private-sector institutions that are saying they want to do what is right for the people, so you mention profit versus helping companies [and it is difficult],” he says. “Everyone around the world is trying to find the right solution for what to do.”

The G20 has called on both multilaterals and private creditors to do more. Pimenta says this is a key opportunity to expedite better coordination between the institutions and to reignite progress towards country platforms.

“It is an opportunity to look at how we work together and take it a step further in terms of being complementary to each other,” he says. “We are all learning to be more effective, more responsive and faster and this will impact beyond the crisis.”

Debt relief is also being discussed among the MDBs as well as the commercial banks, he says, after the World Bank and IMF called for G20 countries to offer relief on public debt.

“We have been discussing extensively with the other MDBs to see how we can better respond to the issues that private-sector companies are facing and some of it will require some postponement of debt,” he says.