IFI governance


Navigating Africa’s debt conundrum amid multiple crisis: Looking beyond the G20 Common Framework

13 April 2023 | Minutes


  • Jason Braganza, Executive Director, AFRODAD


  • Jean Alluga executive director, SEATINI Uganda
  • Grieve Chelwa, Director of Research, Institute on Race, Power and Political Economy, The New School, Lusaka – Zambia
  • Edward Brown, African Center for economic transformation
  • Cesar Calderon, office of the chief economist, World Bank

Jason: This session is about discussing the inadequacy of the debt frameworks put in place, especially in Africa and the Global South, more generally speaking

We are going to discuss the Common Framework (CF) as the one that’s being used now. Especially this is the one that’s been used by 4 countries, all of them in Africa.

Among the countries that have applied the CF are Zambia and Ghana. We will use them today to understand their experience engaging with the CF and the architectural issues that have contributed to the debt situation in the continent.

What are the implications in the medium to long term?

This has been an interesting week in talks about the debt situation in the continent. I attended a session yesterday where an IMF official said they do not see a debt crisis and that debt stress level has not reached the pre-HIPC level that was reached in 2008.

We are here to understand the advice our governments in Africa has been given, but also the political ambitions on how to reform the global financial architecture and rethink global economic governance.

There’s an opportunity here to interrogate this type of interpretations and the situation we’re facing.

We are very lucky to have members of the parliament of the Republic of Ghana in the room
This session is about making Africa a rule maker. This is an opportunity for the continent to claim his place at the table.

I would like to get some initial reactions from the panel on the national dimension of their respective debt challenges.

Starting with Ghana (to Edward): During decades Ghana has been the poster child for the IMF & WB policies especially for the era of structural adjustments and PRSPs. How did Ghana get here? with debt default, shuttle diplomacy with regards to comprehensive ask for restructure and relieve?

Edward: The situation in Ghana is bad. Over time there has been a problem of poor fiscal and debt management.

Some of the key features has been the rapid build-up following HIPC times in 2007. In December 2022 debt had gone to 104 per cent of GDP. This reflects what the DDSA and the Bretton Woods Institutions (BWIs) undertook. GDP ratio is much lower than that. In relation, the debt situation has been ongoing for several years.

If we look at the issue of fiscal deficit, it has always been around. In election years we see a spike – 81 per cent of fiscal deficit. In no election years around 51 per cent.

Other feature of the debt situation is the structure of debt: 60 per cent is domestic – the rest external. This affects resources mobilisation, individual and domestic bond holders and so on. There’s been ongoing conversations of debt restructuring. The fact that almost 60 per cent of debt is to domestic holders is a huge problem. Looking at the structure of external debt: Half is owed by private lenders, 13 per cent due to Eurobond holders.

In the case of Ghana it’s clear that there’s a debt crisis – 70 per cent of revenues in grants is going to debt services. There’s no fiscal space in the country. Public investment is zero. There is no way for the country to build the resources and resilience to face external shocks.

What led to the IMF (it is the 17th time the country is going to IMF) is that the country has no fiscal space. Ghana’s been shut out of the capital markets and has been in conversations with IMF since July last year.

There are several challenges on how you restructure domestic debt. This is a very serious conversation in the country. Citizens are claiming the government should not trust the IMF. There has been some agreement about some restructuring of 80 per cent of domestic debt. They are trying to make sure that pension funds are not taken.

Regarding IMF conversations, even though domestic debt may not be resolved, at least public debt has been recycled in an acceptable way.

Ghana is the 4th country going to the CF. Ghana has been trying to engage with specific individual creditors, such as China (still ongoing).

The challenge lays in the fact that private creditors need to be brought to the table, this has not been easy. This is an ongoing conversation with the Ghanaian government
SDRs rechanelling is important to consider, especially within MDBs, and needs to be discussed.

Jason (to Grieve): Zambia has been relatively well economically and politically safe. 1st African country to default, catching people by surprised. What’s really behind this? What did people missed predicting this?

Grieve: First Covid-19 default came out of nowhere for many. But for people who were following the issue, it started in 2015.

African governments going to capital markets is new. Historically, the source of debt has been MDBs, bilateral, etc. For the first time Zambia is going to issue bonds (internal markets)

The fate of the flow of capital was financing infrastructure development (power, hospitals, etc). The maturity of these bonds were 10 years while infra projects take decades to bring returns.

Build-up in debt isn’t entirely a Zambia problem, it is an African problem. It responds to a real need to build infrastructure.

When the crisis came in the 80s, IFIs advice was to stop wasting time and money on infrastructure. When the 21stcentury came there was a huge infrastructure deficit, so the country started borrowing. The African debt crisis is not self-inflicted. It came about as a result to respond to real needs for infrastructure. But also things happen, such as climate change (draught of 2015), Covid, etc. There are also issues of transparency, accountability, corruption…in many cases, where did the Eurobonds go?

How do we set up mechanisms that allow infrastructure to be built? Is the current multilateral system or current debt mechanisms and flow of money fit for purpose? Are the BWIs and other development banks fit for purpose? How do we resolve sovereign debt crises in a timely and orderly manner?

The CF is an ad-hoc response, and completely not fit for purpose. It approaches the debt problems as it was the 80s, when we only had the Paris Club as the solution. In 2023 there’s a whole plethora of creditors. The CF is only a club of official creditors, what happens with the private creditors (bond holders)? Ghana and Zambia private debt is around 50 per cent.

This is the story and I hope I presented the challenge that is before us.

Jason: I see some commonailities among these cases. We may need to start thinking about how we tackle some of the challenges arised in the debt negotiations.

(To Jane): There is a growing concern among CSOs and parliaments about unhealthy financial position in the country (Uganda). Are there some common drivers that Uganda is also experiencing that are pushing the country to take on more debt?

Jane: The situation in Uganda is the same as in the rest of Africa, where most countries are either in debt distress or debt crisis.

Uganda debt is almost twice the country’s annual budget. If we don’t do anything, do not invest or spend money on anything, it would take us 2 years to pay what we owe. For the past five years it has been the same. Now debt is 50 per cent of GDP.

We spend 35 per cent of our domestic revenue in servicing debt, much more of what’s spent in education, water, etc.

Regarding the drivers, there is an actual need for countries to be able to have resources to finance the government plans, to reinvest, to build infrastructure and engage in other activities but with the lack of resources the country needs to borrow.

There are lots of bonds going around (green, bonds for women…). The government borrow from the private sector at the domestic level but they don’t ask any questions about flexibility, how the debt will be paid…,which brings up the issue about oversight.

Drivers of the debt:

  • Mobilisation of resources locally is not enough.
  • In the short term something must be done (restructutring, debt cancellation…)
  • In the medium-long term we need to assess where we are. We’ve been here before (during HIPC we were in the same position). It is key to find long term solutions.
  • Our economy is very weak: Weak tax system, tax evasion, corruption. They also need to be addressed.
  • In Africa there’s lot of resources extraction, we are net exporters. They go out but they come back as capital. We need to address that issue.
  • Issue of commodities: We cannot have a commodity dependent economy. We produce and export raw materials with fluctuating prices every day.
  • We need to restructure our economy: Create jobs, decent employment and strengthen the economy. There are internal policies that need to change but trade policies need to also change.

We need to lock at the issue of debt broader: We talk about debt sustainability, but we need to change the definition and concept. It should come from a strong economy.

Jason (to Cesar): Regarding Jane’s point about debt sustainability and how outside there’s this paradoxical idea that the World Bank is anxious about the debt crisis looming in Africa. What are the Bank’s concerns and how does it support the involvement of other creditors? Especially given the idea across the road (IMF) that there is no looming debt crisis and that we have not reached pre-HIPC levels.

Cesar: I would like to talk a bit about the questions you had.

It should not be paradoxical the World Bank being anxious about the debt crisis in Africa. The Bank is not a commercial Bank, and as a development bank it provides medium to long term capital for productive investments (health, education, infra projects…), and as that it provides lending that has longer maturity than those provided by other creditors. The lending that the Bank provides is for technical assistance and policy advice.

Regarding the second part of the question, we are concerned about that: How did we get here and why? Looking at the evolution of public debt in the last 10-12 years or so, there’s been a surge: In 2010 Sub-Saharan Africa public debt was at 355 billion dollars. In 2022 it was at 1.14 trillion. And this is average, in some countries it may be even higher. In terms of GDP it went from 32 per cent in 2010 to 56 per cent in 2022.

There is been a switch in the composition of debt. In Ghana there is been an increase in domestic debt and domestic public debt. At the end of 2021 it was almost half of the public debt.

At the same time we talk about external debt. Prior to HIPC most was owed to MDBs and Paris club. Now lot of market based debt (non-Paris and non-traditional creditors)

Debt is not bad. Why debt can be problematic?

  1. Terms and conditions not favourable for the country
  2. The way that the country uses its debt

To see why the debt increased in the past 10-20 years we have to think about what are the drivers.

There are external factors: Accommodative monetary policy. Debt was very cheap which led to an excess global liquidity. When interest rates came up and the debt is adjustable, debt become expensive. That is the problem with having market-based debt, when it becomes more onerous for the lender.

In the last 10 years African countries are resorting less and less to concessional lending and going more to market-based lending, which has increased the amount of debt service. In 2021 African countries were devoting more than 40 per cent of revenues to service debt.

At the same time there’s high risk of debt distress in several countries in the region. Approximately, 22 out of 38 countries in the region that are IDA eligible are either at high risk of debt distress or at debt distress already. None of these countries has a low risk of debt distress. How can the Bank help or support these countries?

Jason: Two common things that have come out for me during the presentations is that there’s an issue of transparency and accountability when we talk about mismanagement. More important is that the market-based approach to development finance, in a period where this kind of lending become more attractive, given the way they are designed, have contributed to the challenge we face today. Cesar, I know the Bank has been very vocal on accountability and transparency from the borrowing side. Is there more that can also be done to encourage transparency and accountability among lenders? And, would that be something the Bank would be willing to support through its technical assistance and national assistance to borrowing countries?

Cesar: The Bank provides low interest loans, no interest rates loans and other loans with maturity from 30-40 years. Less risky in terms of infrastructure.

Second thing we’re trying to do is to foster transparency in terms of debt (monitoring, reporting…). Debt is a contract, which request transparency from both sides.

One of the things being discussed is the possibility of sharing debt sustainability analysis to all creditors participating in a negotiation to see the country’s ability to serve the debt. This is important for trying to assess the extent of debt restructuring that countries may need. This was part of the CF. It is not perfect, but it’s one of the few solutions out there to help the debt issue. It is clear that the CF is slow.

Looking at the example of Zambia, there are many parts that should have been discussed beforehand: shape of restructuring, timeline, etc.

Some proposals from Bank and Fund:

  • Debt standstill: Like formal debt suspension at the request of country during process of negotiation.
  • Share debt sustainability analysis with all creditors, as mentioned earlier.
  • Restructuring process accelerated, establishing clear deadlines in the stages of negotiations.

Design mechanisms to encourage private sector participation from the early stages of negotiation.


Questions & answers

From Ghana: Macro fiscal assessment of countries and their ability to pay debt needs to be much more real, look at real capacity of countries to pay their debt. Looking at GDP is not real, we need to look at nuances. In the case of Ghana for example, there’s been a gap between expenditure and revenue. Spending is far more than what the so-called GDP can give you. Appetite of borrow is deeper than how you can pay. Programs for borrowing are not designed for countries to be able to repay. Much of the borrowing is going into consumption, exposing your ability to pay. How much is it going to investment, corruption, etc.? It makes it harder to see how the money is spent. The private sector could deliver many infrastructure projects, but because of the corruption the governments prefer to do it themselves. How do we link this kind of inefficiencies into the discussion?

From Sudan: The country was one of the largest HIPC cases. Regarding thet he ideas mentioned by Cesar on how to help: How could the private sector help? is it about technical increasing productivity?

From Ghana: The multilaterals have failed Africa. We can report global growth, but we are not interested in the external vulnerability that our countries face. In Ghana there’s a 2023 budget that fiscally is not implementable, but it is responsive to the IMF program. There’s no solution even with the IMF program. We need an honest non diplomatic conversation on how to move forward. About 60 per cent of debt is domestic, but non-resident holders is 30 per cent. We have a country that cannot get money from the outside because of the domestic debt exchange program. How do we do that when you cannot get external resources and while citizens don’t want to put their money inside the country. If this happened in the West, in countries in Europe as  was the case in Greece and Spain, the conversation would be different. We need to democratise these institutions and putting the right voices ahead in the right places to find the right solutions. In the absence of that we will come every year, African will lament and come back and keep our lives as normal.

From Ghana: I wanted to understand how we position the citizens. They are not brought to the fore when it comes to these conversations. Regarding debt transparency, in the case of Ghana, we only realise how much our debt is when Ghana goes to these programs. The crisis is not self-inflicting, but at the same time I think there’re leakages, corruption, and many other issues, such as how debt is used. Citizens are not brought to the table. How do we bring them? Debt transparency: Citizens do not get that info. Citizens are being asked to tighten their belt. How do we know how we have gotten here? How are the BWIs to position themselves to make sure there’s transparency for citizens?

From Nigeria: Fiscal discipline has not been mentioned. It is important for civil society of be part of these processes. If only African leaders can lead by example. The fiscal discipline is not there, the leakages are not addressed. If the loans are not well utilised, then, where is the interest? Listening to Cesar, the mission is to listen to CSO. Officials do not do that, we as CSOs, we need to be part of these structuring programs,

Question (unknown): Looking at the cost of debt: It is not only the interest rates, it’s also the cost of currency when it fluctuates. African countries borrow in dollars and euros, when they fluctuates, governments need to look into their own resources to pay. Regarding currency hedging: We have the resources (commodities, etc), but when we hedge against future receivables, everyone is very positive.  These countries cannot just produce these commodities.

Question (unknown): This is not the best place to talk about defaults on the loans. I had an issue with Bank of America and refused to pay. Ten years after, the bank called and we negotiated and we completed the debt in my own terms. I want African countries to think about default, at least we would service. The costs of our own raw materials are undervalued, we need to refrain the cost of our products. Either we begin to argue with the West and/or the gains from any climate change concessions should be used to refrain the cost of the debt. We should look for unorthodox ways to correct these problems.

From Ghana: I would like to reflect whether debt service is an economic or development issue? We’re facing emergencies. Lots of money that developing countries borrow is for infrastructure and lot also for climate. Why is it that debt for climate swaps is not an option? Why countries, as an option cannot consider swapping our debts? At least these African countries paying that debt would divert that money into climate mitigation, for example.

Jason: many references that I would like Cesar to address: On private sector, how can it come and support? The role of citizens participation in conversations and the interest of Bank and the role for citizens, as well as collective default. Jane can talk on the architecture and fiscal restructure of it.

Cesar: Regarding private sector participation, two things: One from debt negotiation and two from point of reigniting growth, much needed in Africa. Africa needs growth. In debt negotiation we need to design mechanisms so that the private sector can participate from the beginning. We need to be transparent, therefore the sharing of DSA analysis mentioned before.

Bolster private sector involvement: They help with management, technological transfer, which needs to stay in the country for it to growth and provide growth, for example, but it has to stay in the country, so companies grow and create jobs.

Regarding citizens: They have to have a voice. Part of the reason why there’s emphasis on transparency, would be to ask countries to be transparent, to publish debt terms and execution, to disclose loan conditions and negotiations details. This would be a step forward for citizens to monitor these processes.

Cost of debt: Government borrowing in foreign currency has increased. In the case of currency hedging, we have spoken a lot in the Bank over the past five to seven years. We need to have policies that develop financial systems in Africa. We need to protect citizens and households from these crises.

Default: First thing we need to know is whether the country is insolvent. Two solutions:

  • Restructure the loan: delay payment of interest and principal to allow the countries to recover their ability to pay. This needs to be reviewed case by case.
  • Assess debt situation.

Grieve: The swings in the economy performance in Africa have always been driven by external causes. There’s very little African governments can do given the current global architecture. Even being super disciplined these things will still hit. These are things that need to be thought, thinking how we can make the countries stronger against these shocks.
Hedging is an interesting idea. Private sector participation can be useful. Sovereign funds: In good times can the estate save and put the money aside to be used when necessary? Countries need to have the resources.

Default: It’s difficult to implement if you’re working alone as a small country. It would be easier to work together. Argentina has defaulted in the past, but the punishment has been small because it has always come back.

Climate swaps are a great idea: Lots of the problems were not created by the country (most is polluters’ fault)

Edward: There are a few issues we need to look at. There are ongoing conversations among African finance ministers. We keep negotiating with IFIs on global financial architecture and how to influence the CF.

There are 2 issues I would like to bring: Debt on the supply side. On the demand side the accountability is very important. There’re ongoing conversations, as a borrowers club on how to come together as a block.

The private sector needs to come in and create jobs. Importance of domestic resources mobilization.
If we want to reduce debt dependency and begin to grow our economy, coming as a group that would also be more effective.

Jane: Fiscal discipline very important as well as resources.

It is important to rethink about democratic deficit. In the global institutions there’s a lack of democracy. When we come here and say we’re in a debt crisis and they say “no, we’re fine”. We need to democratise the institutions. We all need our voices to be heard.

We need to reform trade and financial architecture. And at WTO there’s that debate.

The Bank provides concessional loans and technical advice, but we need to analyse that policy and advice. Speaking from my country, all the advice we receive we do it, without even asking. We have been consistent, but still we’re here.

Should we have capital controls? IFIs say no. We need to discuss it and open it up democratically.

We need to rethink our economies. We cannot talk about exiting debt, our countries are weak.

I like the issue of defaulting. During the Jubilee Campaign there was an issue with ODIs debt. You can’t lend to a government that is dictatorial. This is why we’ve been raising the issue of responsible borrowing and responsible lending.