The old arguments for debt cancellation in Africa no longer apply

Campaigners should pay attention to significant shifts that have occurred in global development financing

BRIGHT SIMONS

People shop at a market in Accra. Despite Ghana’s assurances to the IMF to pass all public spending through a national accounting platform, nearly 90% of Covid expenditures bypassed it.


The author is a policy analyst affiliated with Imani, a think-tank based in Accra.

Two decades ago, the world was in the grip of a great debate over debt and debt cancellation in Africa. Total public debt stock had climbed to nearly $300bn by 2002 from $40bn in the two decades prior. Jubilee Debt Campaigners insisted on immediate cancellation.

The Pope concurred. Today, Africa’s external debt alone exceeds $700bn. Campaigners are back asking for cancellation. And the Pope again concurs. It would seem as if nothing at all happened in the intervening 20 years.

Yet quite a bit did. After intense criticism of earlier designs and subsequent brainstorming, additional resources were injected into the Highly Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI) set up by the Bretton Woods institutions and their rich country partners in 2005. Nearly $125bn, to be precise.

Between 2000 and 2015, 31 African countries (out of 36 beneficiary countries) had substantial portions of their total debt wiped out. For example, both Malawi and Liberia saw 90 per cent of their external debt cancelled.

Sierra Leone received about 95 per cent relief. Bigger economies like Ghana experienced a lower, but still impressive, decline in debt stock of about 70 per cent. It is surprising, in view of these facts, to see a brand new debt cancellation campaign ignore lessons learnt from previous rounds of debt relief and their impact on economic growth and transformation.

Some African countries — including Kenya, Angola and Nigeria — were considered ineligible for HIPC for various reasons. None of them are among the countries, all big HIPC beneficiaries, that have been compelled to seek debt restructuring recently. Unmissable in this fuzzy picture, however, are the major shifts that have occurred in global development financing.

Three decades ago, sub-Saharan African countries owed roughly 80 per cent of their debt to the so called official creditors — rich countries and multilateral finance institutions.

Today, I estimate the countries with the biggest debt burdens tend to owe more than 70 per cent of their obligations to domestic private investors, international bondholders and not-so-rich countries such as China, India and Turkey.

Consequently, whatever the merits of the debt cancellation campaigns, yesterday’s arguments seem ill-fitting today.

Ghana’s dramatic debt restructuring effort of recent weeks began on the domestic front last December. It has involved pensioners and trade unions adamant that not a penny from their bond holdings will go to support the government’s debt relief efforts. Seventy-five per cent of Ghana’s debt servicing expenses cater for domestic creditors. What would be the point of debt cancellation that failed to address this reality?

Now that Paris Club and Bretton Woods creditors are responsible for a significantly lower proportion of the debt, some campaigners are focusing more on commercial creditors in the west.

While it is true that rich banks do hold some African sovereign bonds, quite a lot are also held by institutional funds whose money comes from ordinary pensioners and workers. It is safe to say that a cancellation campaign in the current circumstances will have to do more than suggest that the creditors won’t miss the money. The humanitarian argument about how high debt servicing takes away money from social services remains compelling, especially in countries such as Ghana and Nigeria where debt service costs are approaching 70 per cent of domestic tax revenues. But questions do arise about where the returns on the borrowed billions have gone.

Ghana’s leaders, for instance, have faced widespread criticism for prioritising a “national cathedral”, complete with a “Bible museum” and “biblical gardens”, that could cost upwards of $1bn, in the middle of a struggling debt restructuring exercise.

Despite repeated assurances to the IMF, which has provided a bailout to the country roughly every four years since independence, to pass all public spending through a national accounting platform, nearly 90 per cent of Covid-19 expenditures bypassed it.

In 2003, Ghanaian-born economist Elizabeth Asiedu published a paper in which she predicted that debt relief would have minimal impact on the HIPCs due to weak institutions.

That prediction now looks prophetic. However emotionally appealing it may sound, debt cancellation alone will not encourage or enhance efforts, already under way in many African countries despite everything, to demand stronger accountability and force much-needed institutional reform.

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https://www.ft.com/content/3d486150-238e-4909-8b19-4cec9a68f5a2
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Ghana’s leaders, for instance, have faced widespread criticism for prioritising a “national cathedral”, complete with a “Bible museum” and “biblical gardens”, that could cost upwards of $1bn, in the middle of a struggling debt restructuring exercise

Ghanaian leaders got their priorities wrong because they got free money.

Not even HE Okorocha will take his obsession with ststues to this level. I agree with the author that debt cancellation is not good for them; makes them wasteful and misplace their priorities.

These western imperialists stuff debts down the throat of these poor third world countries with senseless leaders and huge constricting conditions attached to it.

Most times, I feel that Africans, including Nigeria, didn't deserve independence because her leaders know nothing about leadership.

FreeStuffsNG:
Ghana’s leaders, for instance, have faced widespread criticism for prioritising a “national cathedral”, complete with a “Bible museum” and “biblical gardens”, that could cost upwards of $1bn, in the middle of a struggling debt restructuring exercise

Ghanaian leaders got their priorities wrong because they got free money.

Not even HE Okorocha will take his obsession with ststues to this level. I agree with the author that debt cancellation is not good for them; makes them wasteful and misplace their priorities.

I imagine how frantic you must have fought and tried to link such wastefulness to mr peter obi ,..alas ,without better result.

SmartPolician:
Most times, I feel that Africans, including Nigeria, didn't deserve independence.

You did not read the article. Do not lament or include Nigeria if you want to weep over African countries. We did not get debt cancellation and our debt servicing is high for temporary reasons of covid 19, low oil prices and low crude oil production until now and ambitious infrastructural development by PMB.He was using debt to build bridges, power stations, universities, upgrade Nigerian defence capabilities etc but Ghana was building love gardens with gbese.

If debt is a crime, weep for US with about $30 Trillion debt owed to countries like Japan, China, Russia etc.

Ghana got debt cancellation and now swimming in serious debt!

Look at the kin useless project Ghana wants to spend close to $1b on

Is this madness or what

Udom Emmanuel is also building one in uyo

FreeStuffsNG:
Ghana’s leaders, for instance, have faced widespread criticism for prioritising a “national cathedral”, complete with a “Bible museum” and “biblical gardens”, that could cost upwards of $1bn, in the middle of a struggling debt restructuring exercise

Ghanaian leaders got their priorities wrong because they got free money.

Not even HE Okorocha will take his obsession with statues to this level. I agree with the author that debt cancellation is not good for them; makes them wasteful and misplace their priorities.

You got it all wrong. What impresses one society maybe absurd to others.

Muslims appreciate the Dome of Rock in Jerusalem and billions are wasted to maintain and refurbish it annually. To them, it's not a waste.
Qatar spent tens of billions to build Eco-friendly Cities and Stadiums just for the football carnival and nobody termed it a waste.

Western tastes and admiration are different from Africans and Asians, this is the beauty of diversity. Btw, India passed a law making February 14th, the day of kissing the Cow.