More than 20 African countries were at risk of debt distress earlier this year, according to the International Monetary Fund (IMF), with at least 6 African countries having debt-to-GDP ratios of more than 100%. There is a recognition that Africa will need all the help it can get to deal with multiple shocks from the Covid-19 pandemic, the Russia-Ukraine war and tightening global monetary conditions.
African governments are not being shy about asking for help: in early July 2022, African finance ministers and central bankers called for a “rapid, comprehensive and substantial” debt relief for African countries by the world’s richest economies. However, there are growing concerns that a world distracted by the Ukraine crisis may not give the looming debt distress in emerging markets and African countries the focus it deserves. A case in point, when the G20 foreign ministers met in Indonesia in July 2022, a communique was not even issued, a sign of growing discord in a group of the world’s largest economies that includes Russia, which is currently under a barrage of global economic sanctions, with retaliatory measures disrupting global food and energy supply chains in tandem.
Even so, there is an increasing global outcry for debt relief for the world’s poor countries, which are mostly African, in addition to other easing measures like moratorium on debt repayments, elongation of loan tenors, and other restructuring measures. True, some of the African economies’ current plight were heightened by the Covid-19 pandemic and, later, the Russia-Ukraine war compounding woes just as the coronavirus crisis was beginning to ease. But as many are now faced with galloping inflation, increasingly unsustainable debt levels and revenues that are not sufficient to service debt obligations talk less fund more important basic public services to citizens, there is an urgent need for the world’s richest countries to rally round towards supporting them.
More needs to be done
In July 2022, David Malpass, the president of the World Bank, urged the G20 to hasten debt relief for the world’s poor countries, who together have about $250bn in distressed debt. Progress has been unusually slow since the G20’s Debt Service Suspension Initiative (DSSI), which provided relief for poor countries from their debt servicing obligations owing to the Covid-19 pandemic, expired in December 2021.
A case in point, when the G20 foreign ministers met in Indonesia in July 2022, a communique was not even issued, a sign of growing discord in a group of the world’s largest economies that includes Russia,…
The Common Framework for Debt Treatment beyond the DSSI (Common Framework), also by the G20, which is aimed at restructuring what are increasingly distressed debts, is a natural next step, but has been floundering. As the name implies, the Common Framework brings together both public and private international creditors to ensure agreed restructuring terms are acceptable across the board, and thus robust and credible. As at least 60% of low income countries will probably default on their international debt obligations, according to the IMF, from just below 30% in 2015, there is an urgent need to pick up the pace on the Common Framework.
While the IMF made available $23bn worth of Special Drawing Rights (SDRs) for emergency Covid-19 spending by poor countries in 2021, followed by a pledge of $100bn worth of SDRs to weak economies by the G20, and more recently the creation of the Resilience and Sustainability Trust (RST), there is much more that needs to be done to ensure a successful navigation of the incipient debt crisis in poor countries, especially African ones. According to the IMF, a hitch-free implementation of the Common Framework should be top of the list.
There is also a need to modify some of the design features of the RST. Vera Songwe, the executive secretary of the United Nations Economic Commission for Africa (UNECA), argues the requirement of a regular IMF programme for access to the RST is flawed, for instance, and that its objectives should include emergency short-term support, in addition to its originally intended long-term focus.
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Chad, Ethiopia and Zambia, which are already renegotiating the terms of their external debt under the Common Framework, have faced complications owing to domestic and transactional challenges. The IMF reported progress on Chad negotiations in mid-July 2022, the first country to seek help under the Common Framework, but also highlighted delays in reaching an agreement with creditors, which includes Glencore, a private mining giant.
Incidentally, Glencore is owed the most in the Chadian case via oil swap deals that go back almost a decade. A restructuring deal with creditors is a prerequisite of IMF support for these debt-distressed countries, the list of which is growing by the day. Negotiations by a creditor committee for the restructuring of Zambia’s debt, which is co-chaired by France and China, have also started, with a commitment announced in late July 2022 clearing the way for the IMF to provide support of up to $1.4bn which though agreed in December 2021, was finally approved in late August 2022. The Zambian case is unique, as it is the first African country to default on its external debt of more $17 billion during this most recent incipient round of debt distress. Ethiopia’s creditors’ committee made a commitment on restructuring in August 2022 as well, with the IMF expected to announce a support programme pretty soon. As the case of Chad shows, moving from a restructuring commitment to a deal can be challenging, however.
An edited version was originally published by the Italian Institute for International
Political Studies in Milan, Italy. See link viz. https://www.ispionline.it/en/pubblicazione/crisi-del-debito-ci-risiamo-36083
