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Does SA have the clout to get the IMF, Paris Club, China and private creditors to reach a meaningful agreement in Africa’s longer-term interest, the writer asks. Picture: SUPPLIED
Does SA have the clout to get the IMF, Paris Club, China and private creditors to reach a meaningful agreement in Africa’s longer-term interest, the writer asks. Picture: SUPPLIED

There is no multilateral agreement to co-ordinate rescheduling or restructuring of sovereign debt and debates on creating one has been on the international policy agenda for more than two decades. 

In December the UN secretary-general appointed a group of experts to find actionable policy solutions and galvanise political and public support required to resolve the debt crisis.

One of these experts is former SA finance minister Trevor Manuel, who joins Yan Wang, a Chinese academic with 22 years at the World Bank, and Paolo Gentiloni, former European commissioner for economy. Together they are well positioned to understand the interests and concerns of the key players that need to be reconciled.

Forty Sub-Saharan African countries are in debt distress. They either have high debt burdens, or are vulnerable to economic and policy shocks, or both. Seven countries have either defaulted or are late in repayment.

The long-term debt stock is $864bn, a nearly threefold increase since 2010. Private creditors are owed 41%; multilateral creditors hold another 40%, of which the World Bank accounts for 20%, and 7% of the total is owed to the IMF. China accounts for more than half of the remaining 19% held by bilateral creditors.

The principal and interest payments on total debt have risen from $16bn to $73bn over the same period and meeting these commitments is compelling cuts in health, education and infrastructure, weakening growth prospects and making any prospect of “sustainable development” unlikely. These rapid increases are the result of three major forces.

The first is the entry of many countries into private financial markets. In the late 2000s private investors viewed the African sovereign bonds a reasonable bet given the decade of high commodity prices and improved sovereign debt management. With low yields in other markets they were happy to subscribe to issuance at rates of 6%-8%. With urgent investment needs borrowers frequently front-loaded their investment agreeing to a one-time lump-sum repayment or “bullet payment” at maturity. However, demand for commodities began to decline after 2014 and remained depressed for the rest of the decade. 

When the Covid-19 pandemic hit in 2019 multilateral development banks ramped up lending and the IMF advised African countries to “do whatever it takes to ramp up public health expenditures to contain the virus outbreak, regardless of fiscal space and debt positions” (IMF Regional Economic Outlook, April 2020).   

The Group of 20 (G20) stepped in, agreeing on “debt relief” to countries with immediate liquidity needs and suspending debt service payments from some countries from May 2020 to December 2021. This G20 Debt Service Suspension Initiative (DSSI) delivered about $12.9bn in temporary relief, of which China accounted for nearly half ($5.7bn). The IMF and World Bank Group (WBG) were not required to participate in the DSSI and private creditor participation was limited. 

Finally, as the US Federal Reserve began increasing interest rates the sovereign debt “overhang” of African borrowers ballooned, amplified by an unwillingness by private creditors to roll over payment.

Several countries defaulted, including Zambia (2020), Ghana (2022) and Ethiopia (2023), and many no longer have access to capital markets, making them dependent on multilateral development banks.

Those that have access are facing higher prices and shorter tenors. In 2024 Ivory Coast, Benin and Kenya raised $2.6bn, $750m and $1.5bn, respectively. Kenya’s seven year note was at an eye-watering 10.375%.

The IMF and Paris Club proposed a more permanent sovereign debt restructuring mechanism, a Common Framework for Debt Treatments. It did not represent much deviation from IMF-Paris Club practices and non-Paris Club members of the G20 were sceptical. China strongly objected and rejected the framework, citing a lack of transparency in process as well as little consultation on the provisions.

Not only does this highlight the governance shortcomings at the IMF, but the exemption given to the IMF and WBG under the framework means a larger “haircut” for bilateral creditors, which China argues is unfair.

The resulting standoff has been kicked into a G20 “consensus building forum” the Global Sovereign Debt Roundtable. Here officials from traditional bilateral creditors, and representatives from “new” lenders, including the Export-Import Bank of China (China Ex-Im Bank), grind through the IMF’s “technical work” giving the appearance of “doing something” about a problem that needs a political solution. 

Issues include:

  • the definition of official versus commercial lenders, especially in the case of China’s policy banks — China Ex-Im and the China Development Bank — where this is blurry;
  • the definition of debt sustainability — is the country in debt distress merely illiquid, or is it insolvent? If illiquid due to a temporary export shock, repayment deferral rather than debt forgiveness is an option; and
  • “comparability of treatment” between public and private creditors and agreement on the scale of relief offered.

Extending payment schedules or adjusting interest rates might not offer meaningful relief. If countries remain at risk of distress and face high costs of borrowing they will stay on a lower growth path.

This will make their prospects of repaying future debt weak and they will remain trapped in a vicious circle of low investment and weak economic performance — until the temporary fix of a commodity boom. Until then, African countries are cutting investment spending and are increasingly dependent on foreign aid.

The UN panel commits a dedicated team, skilled in diplomacy, to explain the multiple perspectives of all interested parties. The question is whether SA has the clout to get the IMF, Paris Club, China and private creditors to reach a meaningful agreement in Africa’s longer-term interest.

• Dr Rose-Innes, a former senior Treasury official and adviser to the executive director of the World Bank representing Angola, Nigeria and SA, is a development finance consultant based in Washington.

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