PRETORIA, South Africa, May 19 (IPS) – The COVID pandemic has had a profoundly negative impact on Africa’s sovereign debt situation. Currently, 22 countries are in debt distress or at high risk of debt distress.
This means that African governments are struggling to pay the debts they have incurred on behalf of their states. For example, Mozambique and Zimbabwe are already burdened with debt. Others at high risk include Malawi, Zambia, and the Comoros.
This situation is likely to be exacerbated by the war between Russia and Ukraine. The conflict is causing an increase in the prices of basic products, in particular food and gasoline. It is also disrupting supply chains for critical goods like fertilizers.
The ability of countries to manage their debt is complicated by the changing composition of the debt. They now owe more money to a wider range of creditors.
In 2020, sub-Saharan Africa had a total external debt of US$702.4 billion, compared to US$380.9 billion in 2012. The amount owed to official creditors, including multilateral lenders, governments and government agencies, increased from US$119 billion to $258 billion.
Furthermore, the amount of bonds issued by African states in international markets has tripled in the last 10 years. These bonds are held by a wide range of investors, including insurance companies, pension funds, hedge funds, investment banks, and individuals.
In our new book we address the challenges these changes have created for sovereign debt management in the 16 countries of the Southern African Development Community.
We hope that the book will stimulate debate among academics, activists, policymakers and practitioners about how the Southern African Development Community should manage its debt. Five recommendations emerge from the contribution. These include the need for greater debt transparency and an approach to debt management that takes into account a number of factors beyond finances.
The book contains a series of essays initially presented at various virtual workshops held in 2020. Participants sought to understand the debt challenges facing the countries of the Southern African Development Community. They also offered policy-oriented recommendations for dealing with them.
They pay attention to the impact of the COVID-19 pandemic on the debt situation, but also acknowledge that it is only one factor contributing to the difficult debt situation in the region. Therefore, they also focus on the broader domestic and international factors that are shaping debt management in the region.
In an effort to chart a way forward, the contributing authors addressed the following four topics:
- • The impact of structural changes in the world economy on the debt landscape of the Southern African Development Community. One example is the growing importance of finance in the global economy. • The challenges of managing and restructuring sovereign debt in the region; • The implications of the lack of transparency in the accumulation and use of sovereign debt; • Options for incorporating social and human rights considerations into sovereign debt renegotiations and restructurings.
The contributors make five key recommendations:
The first refers to the transparency of the debt. The recommendation is that the countries of the region adopt comprehensive debt data disclosure requirements and state borrowing procedures that are transparent and participatory. The objective would be to facilitate the accountability of decision makers.
Debt transparency is the cornerstone of debt management reform. Sovereign debtors must follow well-publicized, predictable, and binding legal procedures to incur new financial obligations. In addition, they must disclose the amount and contractual terms of their loans. This should include any arrangements to enhance the security of the loan.
One example is resource-backed loans. In these loans, the repayment is made with natural resources or is guaranteed by the income generated from the sale of the natural resource.
Sovereign debtors must disclose this information to their creditors, the multilateral financial institutions of which they are member states. They must also make the information available to the public through national platforms.
Good government. This implies strengthening national debt management policies to deal with governance problems.
Transparency alone will not guarantee responsible borrowing. Debt management frameworks and practices must conform to all principles of good governance. The list includes transparency, participation, accountability, reasoned decision-making, and effective institutional arrangements.
Legal predictability. This implies strengthening the contractual provisions in debt contracts. Debt is a contractual relationship. Therefore, it is important for debtors and creditors to enter into contracts that are as complete as possible. This means that the contracts must equitably distribute the risks between the parties.
This would include, for example, accommodating who is most capable and most willing to accept risks. In addition, the contracts must provide the parties with clear answers to the questions that may arise between them.
This would require policymakers to provide guidance to their debt managers on the terms and conditions they can accept in contract negotiations.
Comparability of treatment during restructuring. This means that, when necessary, all creditors must participate on comparable terms in any sovereign debt restructuring. Sovereign debtors in the Southern African Development Community can enhance creditor confidence by offering all creditors comparable treatment. This would give them peace of mind that any relief they provided would benefit the debtor rather than other creditors.
This should facilitate the debtor’s efforts to reach an agreement with all of his creditors.
A comprehensive approach. Sovereign debt is not just a financial issue. It has implications for the social, political, economic, cultural and environmental situation of the debtor country. It requires a comprehensive approach to debt restructuring that incorporates all relevant stakeholders.
This includes citizens of debtor states, multilateral creditors, bilateral creditors, and private creditors such as bondholders, institutional investors of various types, and commercial banks. It also requires that all necessary issues be addressed. These range from financial sustainability to the social, environmental and human rights impacts of restructuring.
Therefore, the sovereign debtor and its creditors must seek to engage effectively with each of these actors and with all of these issues.
These recommendations show that there is a need for more innovative approaches to sovereign debt. One possible approach is the DOVE (Debt of Vulnerable Economies) Fund. It will use funds raised from all sovereign debt stakeholders to purchase the bonds of distressed African debtors and will commit to accepting only debt restructuring that complies with a set of published principles based on international standards that support a comprehensive approach to debt. restructuring.
Source: The Conversation, which was founded in Melbourne, Australia, in 2011 and now operates as a global network of sites with dedicated teams working in Australia, the US, the UK, France, Africa, Indonesia, Spain and Canada. https://theconversation.com/debt-distress-in-africa-biggest-problems-and-ways-forward-182716
Danny Bradlow The SARCHI Chair is financed by the National Research Foundation. He received funding from the Open Society Initiative for Southern Africa (OSISA) for this book project. Magalie Masamba receives funding from SARCHI President Danny Bradlow and Oxfam South Africa. Magalie is co-editor and co-author of this book project funded by the Open Society Initiative for Southern Africa (OSISA).
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