Predictable, voluminous, and immediate crisis finance in a key currency is essential to prevent a temporarily illiquid but otherwise solvent country from falling behind in sustainable development. This is especially true for developing and emerging countries that cannot borrow in their own currency. For these countries, a liquidity shortage can quickly escalate into a balance of payments or a solvency crisis. Yet, access to crisis finance is highly uneven in the Global Financial Safety Net (GFSN)—the set of institutions and arrangements that backstop countries in financial distress. With the International Monetary Fund (IMF) at its centre, the GFSN also includes Regional Financial Arrangements (RFAs) and central bank currency swaps (BSAs).

The GFSN has evolved into a highly complex and mostly uncoordinated system of these global, regional, and bilateral mechanisms. Despite its increasing volume and complexity, many developing and emerging countries remain underserved in terms of available crisis finance.

This policy brief evaluates the relative contribution to crisis recovery of each crisis finance mechanism in the GFSN. Considering an empirical study on developing and emerging countries’ recovery frGom crises with and without access to either of the elements of the GFSN, this policy brief shows that (i) all GFSN elements entail liquidity effects that improve developing and emerging countries’ crisis resilience, (ii) countries that rely solely on the IMF forego the beneficial effects of RFA and swap liquidity that can enhance crisis recovery additionally and at more favourable conditions. The results show that Africa is a blind spot in terms of coverage, which is of particular concern given that many countries in the region face external vulnerabilities.

With its convening power for reform of the international financial architecture, the G20, with the African Union as a new member, is uniquely positioned to ensure that the GFSN better meets the needs of developing and emerging countries in general and African countries in particular. To this end, this T20 policy brief recommends the following two key reforms to address the existing deficiencies of the GFSN: (i) expanding access to IMF unconditional financing; and (ii) operationalising the African Financial Stability Mechanism.