The pandemic is also leaving economic scars that need to be addressed urgently. While it has dug debts everywhere, the burden risks becoming unbearable for a number of countries, most of which are in Africa. Seventeen countries on the continent are now at high risk of over-indebtedness, compared to four in 2014, and four are already in over-indebtedness, according to thecount of the Economic Commission for Africa.
The average indebtedness of sub-Saharan African countries was 50% of GDP in 2019 and it has risen to 58% today, according to the World Bank. This last alert in particular on the situation of Congo, Mozambique, Sao Tome and Principe and Somalia.
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While the G20 finance ministers are currently meeting in Jakarta to discuss this subject, the chief economist of the World Bank, Carmen Reinhart, deplored the inertia of the rich countries, noting that the Europeans have mobilized for the Greece because a possible payment default would have had an impact on German banks, while “small African countries are not systemically important”. But a debt crisis of a large number of African countries might result in a prolonged recession and increase the share of people in extreme poverty on the continent.
Negotiations are slipping
At the start of the pandemic, in 2019, the G20 countries agreed on an initiative to suspend debt repayments. Forty countries have thus been able to keep 10 billion euros in their coffers in two years, which have been used to deal with the consequences of the health crisis. But this initiative ended on December 31, and debt repayments must now resume.
Over-indebted countries are now invited to request a reorganization of repayments. Three countries have done so: Chad, Ethiopia and Zambia. But none of these negotiations came to fruition. This process is slipping because the nature of the debts has changed compared to 1996, the date when the last major relief program was decided. Developing countries are now increasingly indebted to private creditors: investment funds, banks, even commodity giants (like Glencore, which holds more than a quarter of Chad’s debt).
In addition, they are also indebted more and more vis-à-vis new creditor countries such as Saudi Arabia and especially China, which alone holds 30% of the debt of the 22 most fragile African countries. These loans are made over the counter, without transparency, so that the real financial situation of a certain number of countries remains unknown. The figures circulating are in fact only estimates.
Private actors less inclined to abandon their debt
To deal with situations of over-indebtedness, the G20 countries have negotiated a “common framework”. It includes a commitment to greater transparency and to a “comparability of treatment”, that is to say that all creditors, public and private, must agree to make an equivalent effort. But when it comes to applying these principles, it is more difficult.
“China is Zambia’s largest creditor. It participates in the common framework, but it takes time to appropriate these new rules…”, said a source in Bercy. And as far as Chad is concerned, the blockage comes rather from private creditors.
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“African debt is held one-third by public actors, one-third by private actors and one-third by public development banks.analyzes Maé Kurkjian, advocacy officer for the NGO One. Private actors have taken an increasingly large part. However, they are the ones who have the least interest in giving up part of their debt. They often wait cynically for part of the public debt to be cancelled, so that the budgetary leeway thus freed up allows them to be reimbursed. »
The principle of comparability of treatment has in fact been adopted by the States. But nothing obliges the private creditors to rally to it, if not the fear of a default of payment of the borrowing countries, if ever a crisis of the debt of great magnitude were to occur.