Africa’s debt crisis requires a bold new approach

Financing development and environmental policy objectives has not been easy for African countries over the past few years.

Recent events suggest that the situation may be improving. For the first time in two years, three African countries have gained access to international financial markets, albeit at high interest rates. Kenya, for example, now pays more than 10%, compared to about 7% in 2014.

Many African countries continue to face difficult sovereign debt situations.

Total external debt as a percentage of Africa's export earnings increased from 74.5% in 2010 to 140% in 2022. In 2022, African governments had to allocate about 12% of their revenues to debt servicing. From 2019 to 2022, 25 African governments allocated more resources to servicing their total debt than to the health of their citizens. And at the end of 2023, the International Monetary Fund estimated that more than half of Africa's low-income countries were experiencing potential or actual debt service difficulties.

This suggests that Africa will have great difficulty raising the US$1.6 trillion that the Organization for Economic Co-operation and Development estimates is needed to achieve the Sustainable Development Goals by 2030.

One of the lessons of the coronavirus pandemic and climate change negotiations is that Africa will need sufficient new financing and debt relief from the international community to address its development needs and the impacts of crises such as pandemics and extreme events. That's something you can't expect them to provide. meteorological phenomenon.

Official bilateral creditors appear to be more focused on their own needs and other regions of the world than on Africa.

Commercial creditors are willing to provide financing on favorable terms, and African debt can help meet investment obligations. But when the going gets tough and the risks associated with the trade are real and compensated for, they become less aggressive.

This suggests that Africa needs to advocate more aggressively for its own interests.

This year presents a good opportunity to promote a more effective approach to Africa's debt.

Requires careful planning

There are two international conferences where global economic governance is on the agenda. This year also marks the first time that the African Union will join the G20 as a full member. Additionally, South Africa, which holds the G20 Presidency in 2025, currently serves as a member of the troika governing the G20 process.

Debt and development finance will be high on the agenda in all these forums. African representatives can use their participation to advocate for new approaches to sovereign debt that are more responsive to African needs and concerns. They can also lobby other participating states and non-state actors for support.

But African countries will need to plan carefully. Their starting point should be the well-recognized fact that the current sovereign debt restructuring process is not working well for everyone.

The G20 has agreed on a common framework aimed at helping low-income countries resolve their sovereign debt crises. Four African countries have applied for debt restructuring through this framework. Despite years of negotiations, three of the debt crises could not be fully resolved.

Countries outside the Common Framework, such as Sri Lanka, have also not been able to fully resolve their debt crisis. This is costly for both debtors and creditors. Therefore, it is in everyone's interest to look for new approaches.

This requires all stakeholders to be willing to accept new ideas and experiment with new approaches to old problems. African countries should offer their own innovative proposals. You should also express your willingness to take on new responsibilities if the creditor wants the same.

They can remind creditors that these experiments are not done in isolation. These could be guided by a number of existing but underutilized international norms and standards applicable to responsible sovereign debt transactions, such as the Unctad Principles for Responsible Sovereign Debt Transactions. Some of these relate to the conduct of government debtors. Some companies focus on responsible lending practices and are often cited by creditors in their policies dealing with environmental and social issues, social responsibility and human rights.

By basing the new approach on these international norms and standards, both debtors and creditors simply agree to implement principles already accepted.

Based on this starting point, African countries should make three concrete proposals.

concrete proposal

First, we need to work to make both the debt burdening process and the terms of all public debt transactions transparent.

This ensures that their citizens understand what obligations their government has on their behalf. This will encourage governments to adopt responsible borrowing and debt management practices. You must also agree that you may be held liable if you fail to comply with these transparent and responsible sovereign debt practices and procedures.

Second, African countries should point out that there are fundamental problems with sovereign debt restructuring processes that focus solely on the contractual obligations owed by debtor countries to their creditors.

This focus effectively means that paying off debt takes priority over the debtor's efforts to address its vulnerability to climate change and biodiversity loss, as well as its poverty, inequality and unemployment issues. .

This is unlike an insolvent company, where creditors can use the restructuring process to lend money to sovereign borrowers in financial difficulty, without considering the impact on debts to pensioners or civil servants, for example. This stems from the fact that you can force someone to pay. Or the welfare of the people.

This sole focus on debt contracts conflicts with the international community's interest in addressing global challenges such as climate and inequality.

This problem can be resolved if both creditors and debtors agree to adopt a debt negotiation approach that incorporates the financial, economic, social, environmental, human rights, and governance dimensions of the sovereign debt crisis.

Third, African countries should offer to publicly commit to creditors to base new approaches to sovereign debt on an agreed list of international norms and standards related to responsible international financial practices. be. These include those dealing with social issues, including transparency, climate and environmental issues, and human rights.

Danny Bradlow, Professor/Senior Research Fellow, Center for Scholarship Advancement; University of Pretoria

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