A private ambulance paramedic puts on protective gear during a training
to prevent the spread of the coronavirus disease (Covid-19) in the town
of Thika, near Nairobi, Kenya, March 20, 2020. PHOTO | REUTERS
Africa is crying out for debt relief to weather a perfect storm
of coronavirus, plummeting oil and
commodity prices, mounting budget deficits and weaker currencies.
commodity prices, mounting budget deficits and weaker currencies.
But delivering the
relief that would allow governments to pump resources into creaking
healthcare systems and shield economies against the fallout from the
pandemic is a tall order.
When the International
Monetary Fund (IMF) and World Bank launched their Heavily Indebted Poor
Countries (HIPC) debt relief programme in 1996, African nations mainly
owed money to wealthy countries and multilateral institutions.
No longer.
China’s
government, banks and companies lent some $143 billion to Africa
between 2000 and 2017, according to Johns Hopkins University, and
African governments have raised over $55 billion on international debt
markets in the past two years, the culmination of a decade-long spree of
Eurobond issues.
Throw in debt held by other banks,
commodity traders and even so-called vulture funds, and Africa’s
creditor landscape has become far more complex.
That means debt relief frameworks of the past may fail to ease
the pressure on government finances unless private lenders are flexible,
bondholders consider waiving repayments or interest and China works
closely with Western institutions that have often criticised its lending
practices, experts say.
“The complicated structure
makes it harder, undoubtedly. But let’s do what we can,” Masood Ahmed,
president of the Center for Global Development in Washington, told
Reuters.
A former IMF and World Bank official, Ahmed
oversaw the development of the HIPC initiative and thinks those
institutions need to secure a debt moratorium under the direction of the
Group of 20 (G20) major economies.
NO HARDCORE DECISIONS
Wealthy
countries in lockdown to curb a pandemic that has killed more than
24,000 people worldwide are pumping trillions of dollars into their
economies to combat the fallout.
The G20 also said
after an emergency meeting on Thursday it would address risks of debt
vulnerabilities in low-income countries but failed to approve an IMF and
World Bank proposal to freeze their bilateral debt payments.
“No
real, hardcore decision was taken on this,” South African President
Cyril Ramaphosa said after the meeting, although Canada, France, Germany
and Russia backed the measure.
That leaves some
African governments now facing a potentially unsavoury choice between
satisfying creditors or spending money on hospitals and bailing out
their economies.
In just two years from 2015 to 2017,
African external debt payments doubled from an average of 5.9 percent of
government revenue to 11.8 percent. At 32 percent, the proportion of
debt owed to private lenders is almost on a par with multilateral
institutions at 35 percent.
What’s more, 55 percent of
external interest payments are to private creditors, whereas China
accounts for 17 percent, according to the Jubilee Debt Campaign.
The
IMF is making $50 billion available from its emergency financing
facilities and some 80 countries have already asked for help, including
around 20 from Africa. The World Bank has also approved a $14 billion
Covid-19 response package.
But African governments say
that won’t be enough. Ethiopia said in a proposal submitted ahead of the
G20 meeting that Africa needs $150 billion in stimulus measures.
“Covid-19
is the most significant threat to our way of life and global security
in modern times,” government spokeswoman Billene Seyoum said. “If it is
not met with collective response, the global health crisis will be a
global financial crisis.”
‘NOW IS THE TIME’
Even
before the coronavirus outbreak set the stage for a global recession,
African governments were feeling the strain. Over the last decade,
Africa’s public debt has increased by half to about 60 percent of the
continent’s gross domestic product.
Seven African
countries were in debt distress as of October, according to the IMF,
with nine more at high risk. For some, the strain could become too much.
“Zambia
does stand out as the country that was already underperforming,” Simon
Quijano-Evans, chief economist at Gemcorp Capital. “The most
constructive way for Zambia would be to go down the path of an IMF
programme, very clearly, and now is the time to do it.”
As
lockdowns shut factories around the world, demand for metals is
plunging, hitting countries such as Democratic Republic of Congo and
Zambia, Africa’s biggest copper producers.
Africa’s
biggest oil producer, Nigeria, has slashed nearly $5 billion from its
budget and devalued its currency. It factored in an oil price of $57 a
barrel for 2020 but is selling crude for as little as $20. Other oil
producers such as Angola, Gabon, Congo Republic and Chad are also
hurting.
Yvette Babb at investment firm William Blair
International said the recent performance of many African Eurobonds
reflected investors’ concern about the ability, and willingness, of
governments to service their debt while the risk of sovereign credit
events was rising in the short term.
“We do believe
that this over time will be mitigated by strong support from
international finance institutions, as well as easing global liquidity
conditions,” Babb said.
NO HALF MEASURES
While
rich countries can borrow at close to zero interest rates to finance
their massive stimulus packages, that’s not on the menu for African
nations where bond yields have spiked.
“If you are
South Africa, or one of the other sub-Saharan African countries, and
have seen your borrowing costs soar in recent days, you don’t have that
option,” said Charlie Robertson, global chief economist at Renaissance
Capital.
Tim Jones at the Jubilee Debt Campaign, which
is pushing for the debts of the poorest countries to be cancelled, said
the multifaceted nature of Africa’s creditors meant handing out more
loans to see countries through the crisis won’t be enough.
“If
their proposal is just to lend a lot of money without a moratorium on
debt payments, it’s not going to stay in country. It’s going to be used
to pay back various creditors,” he said.
Angola, for
example, spent nearly 43 percent of it total revenue servicing debt in
2019, according to data compiled by Jubilee. Ghana spent 39 percent and
Gambia 38 percent.
Ethiopia wants interest payments on
government loans written off with some debts owed by low-income
countries cancelled and the remainder converted into low-interest loans.
African
finance ministers went further last week, calling for a waiver of
interest and coupon payments on commercial debt and sovereign bonds - a
move they said would save Africa $44 billion this year.
But
suspending those debt obligations won’t be easy, because getting all
the disparate creditors to independently agree to debt relief is
unlikely, analysts say.
“The challenge that we’re
seeing globally is really one of the most profound that the global
economy has faced in several generations. This requires a lot of
out-of-the-box thinking,” said Abebe Aemro Selassie, head of the IMF’s
Africa Department.
“Now is really not the time for half measures.”
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