The African Union’s finance team is seeking deferments of interest and principal repayments, and some cancellation of the estimated US$365 billion in international debt owed by economies in Africa.
The latest projections from the World Health Organisation’s modelling means Africa could see some 10 million coronavirus cases within three to six months. The reality that states pay far more on servicing foreign debt rather than on public health, may weigh heavily on the minds of many.
But the marginal concessions made by creditor countries so far shows the difficulty of negotiations in a climate described by one commentator as “the end of the world economy as we know it”.
Early on 15 April, a virtual meeting of the Group of 20 (G-20), economies that make up 80% of world output, agreed to a minimalist formula of debt relief for the 76 poorest countries: a suspension of official debt obligations until 2022.
This debt holiday could be worth “north of $20bn” said Saudi Arabia’s finance minister, Mohammed al-Jadaan, who chaired the meeting.
French treasury analysts reckoned the concession could postpone just $12bn of payments due this year. The G-20’s offer covers just a quarter of the debt service payments that Africa is due to make this year.
After the holiday…
But the debt principal and interest will have to be paid when payments are due to restart next year. Meanwhile interest will continue to accrue on those suspended debts. And the deal offers no respite to African countries defined as lower middle-income such as Côte d’Ivoire, Ghana, Kenya and South Africa.
African ministers have also been calling on Beijing to offer some relief on payments to service the $140bn debts owed to China’s government and its biggest companies. Chinese officials say they want to deal with the question piecemeal on a bilateral basis, rather than in a multilateral forum.
Given the G-20’s failure to offer palliatives on debt – other than rhetorical statements until now – its first concession this week was a qualified win for the Africa Union’s team led by Tidjane Thiam, Cote d’Ivoire’s former minister of trade and managing director of Credit Suisse.
Working alongside him are Donald Kaberuka, former President of the African Development Bank and Trevor Manuel, former finance minister of South Africa, both veterans in the international money markets.
The AU team’s goal is to secure $44bn of debt relief, a generalised suspension of interest payment for all of Africa’s economies, and a stimulus package of $100-150bn.
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A few hours before the G-20 meeting, French President Emmanuel Macron was on Radio-France Internationale arguing for a more generous deal: “For as long as the crisis lasts, we must ensure African economies have breathing room, that they are not held back by repayments on debt.”
Macron said a moratorium on debt repayments would be a step towards an eventual cancellation of some of the debt. “This [moratorium] means suspending payments of interest … we spread out the debt and perhaps in time everyone will be on board with this idea of [debt cancellation].”
Backing for ‘Special Drawing Rights’
Sweeping debt cancellations are anathema to some G-20 members, as is Macron’s backing for the expansion of the IMF’s “special drawing rights (SDRs)” to offer a liquidity boost to developing economies.
The SDRs are a form of global money issued by the IMF. They are held in the foreign reserves of member states of the IMF and can be traded or used for transfers to other country’s central banks. At the height of the global financial crisis in 2009, the IMF issued SDRs to the value of $250bn to boost liquidity in the international system.
This week, Macron joined with German chancellor Angela Merkel and African leaders such as Ethiopia’s Abiy Ahmed and South Africa’s Cyril Ramaphosa, in signing a letter to the London Financial Times urging the IMF to “decide immediately on the allocation of special drawing rights … to provide liquidity for the procurement of basic commodities and essential media supplies”.
Pushback on initiative
But the US Treasury led by Steven Mnuchin has pushed back hard at such a plan when it came up at this week’s Spring meetings of the IMF and the World Bank.
IMF managing director Kristalina Georgieva, who strongly backs calls for more SDRs, had promised the opening press conference of the meetings on 14 April “to act decisively with what we have and where there is full consensus among our members [but] we recognise that there are other options to be explored and we will continue to do so.”
Next up on the debt negotiation list will be Africa’s private creditors who are holding some $115bn in bonds. They are keeping out of public discussions, but privately say that any attempted renegotiation of these liabilities would amount to a default.
And that would lock many countries out of the markets.
Bottom line: The campaign to restructure Africa’s debts faces immense obstacles, particularly from the US and China, but international opinion is shifting in its favour.
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