Western governments should “force” private lenders to facilitate loan repayments from low-income countries to deal with a debt crisis, campaigners say.
Debt Justice, formerly Jubilee Debt Campaign, said African governments owed three times more debt to Western banks, asset managers and oil traders than to China, and had to pay double the interest. China has been “wrongly” blamed by Western leaders for its failure to push ahead with debt restructuring.
Tim Jones, head of policy at Debt Justice, said the UK and US were particularly important in reining in Western lenders, as most international private debt deals are made under UK or US law. .
The organization has calculated that 12% of African governments’ external debt is owed to Chinese lenders, compared to 35% to Western private lenders.
Half of the 22 most indebted African countries owe more than 30% to private lenders, while only six owe the same levels to China.
However, some of the Chinese loans, mostly focused on infrastructure, have been criticized for their strict terms. In the case of a loan to upgrade Entebbe airport, the Ugandan government will have to give China the first 20 years of revenue to repay the debt.
Jones said Western governments had failed to tackle companies in their own countries which, unlike China, had not suspended debt repayments during the pandemic. “Western leaders blame China for Africa’s debt crises, but that’s a distraction. The truth is that their own banks, asset managers and oil traders are much more responsible, but the G7 let them off the hook,” he said.
“There can be no effective solution to debt without the involvement of private lenders. The UK and US should introduce legislation to compel private lenders to participate in debt relief.
The pandemic has pushed the external debt of low-income countries to the highest levels in 50 years, with nearly two-thirds of countries suffering or at risk of debt distress, such as loan default, according to the World Bank. Russia’s invasion of Ukraine has raised new concerns by disrupting food and commodity prices.
In a report released last week, the UN said developing countries struggling with the global cost of living crisis are also burdened by high debt, depleted foreign exchange reserves and rising interest rates. .
The G7 acknowledged the need for debt restructuring at a meeting last month. The leaders said they would “urge all affected creditors, including non-Paris Club countries – such as China – and private creditors” to get more involved in debt restructuring. He also pledged to “successfully” implement the G20 Common Debt Framework, which was agreed in 2020 to provide relief to low-income countries with unsustainable debt.
International Monetary Fund Managing Director Kristalina Georgieva has warned of a crisis unless China and other G20 economies, whose finance ministers are meeting in Indonesia this week, act faster on the debt relief.
Yungong Theophilus Jong, of the African Debt and Development Forum and Network, said Western governments should force private lenders to cancel their debts. “Multilateral and private creditors remain the main creditors of African governments. Loans from China have increased Africa’s indebtedness, but by far less than Western lenders. All lenders must participate in debt relief,” Jong said.