A month after Zambia’s “landmark” debt restructuring deal with bondholders was announced, and three excruciating years post-default, the deal now faces derailment over disagreements between commercial and official creditors on “comparability of treatment”, questioning the equity of the haircut terms for each. While the Global Sovereign Debt Roundtable – a forum meant to find common ground between Paris Club and non-Paris Club bilateral creditors, private sector lenders and borrowing countries, chaired by the IMF, World Bank and former G20 presidency India – had just praised the “positive momentum” from Zambia’s agreement, the deal’s rejection is now sending ripple effects to other countries in debt distress, once more challenging the already barely functioning Common Framework (see Observer Spring 2023, Winter 2020).

Meanwhile, despite the Fund’s acknowledgement that poor countries need urgent debt relief to tackle the climate crisis and encouragement of “pre-emptive restructuring” in the latest Global Financial Stability Report, at the October Annual Meetings senior IMF staff continued to emphasise that “we are still far from where we stood before the HIPC [Heavily Indebted Poor Country] initiative in the 1990s” and have refused to call the current situation a debt crisis. Following reports from UNDP, UNCTAD, the UN Independent Expert on Debt and Human Rights, and various civil society organisations (CSOs) demonstrating the staggering impacts of debt-induced austerity on human rights, poverty and inequality (see Observer Autumn 2023), the refusal to call a spade a spade because it is not “systemic” feels like tone-deaf semantics to people in the Global South. The UN Secretary General’s 12 July remarks made clear that “because most of these unsustainable debts are concentrated in poor countries, they are not judged to pose a systemic risk to the global financial system. This is a mirage. 3.3 billion people is more than a systemic risk. It is a systemic failure.”

Indeed, a new database by Development Finance International shows that “citizens of the Global South now face the worst debt crisis since global records began,” with an average of 38 per cent of government revenue absorbed by debt servicing, rising to 54 per cent in Africa. “These figures are more than twice the levels faced by low-income countries before HIPC,” emphasised author Matthew Martin, where “debt service equals combined total spending on education, health, social protection and climate, and exceeds it by 50% in Africa.” Already two years ago, lower income countries were spending five times more on external debt payments than on tackling climate change (see Observer Winter 2021). This ratio has now risen to 12 times.

Because most of these unsustainable debts are concentrated in poor countries, they are not judged to pose a systemic risk to the global financial system. This is a mirage. 3.3 billion people is more than a systemic risk. It is a systemic failure.António Guterres, UN Secretary General

Civil society urge decision-makers to cancel debt and prioritise sustainability of life

Civil society’s decades-long calls for a new approach to debt sustainability are growing again, fuelled by the escalating climate catastrophe that traps many vulnerable countries in a vicious cycle of climate shocks, debt and fossil extraction. Chad, another Common Framework applicant, exemplified this: Its 2022 restructuring deal granted no debt relief as temporarily higher oil prices made its oil-backed loans from commercial creditor Glencore suddenly repayable, effectively forcing Chad to keep maximising oil extraction (see Observer Winter 2022). And while the Fund continues to base debt sustainability assumptions on over-optimistic fossil revenue predictions like in Mozambique (see Observer Summer 2022), fiscal needs for climate and development spending remain un-accounted in these analyses (see Observer Autumn 2023, Autumn 2022).

In September, the Bogota Declaration united experts from across the Global South demanding “unconditional cancellation of all unsustainable and illegitimate debts from all creditors, for all Southern countries” and stressing that “the heaviest impacts are borne by millions of working people, particularly women.” An open letter from the Global Week of Action for Debt, Climate and Economic Justice with 600 signatories including leading economists Thomas Picketty, Jayati Ghosh and Jason Hickel, highlighted in November that advanced economies continue to skirt their climate finance obligations. “They owe us reparations for the massive ecological and climate debt incurred from the historical exploitation and dispossession of the human and environmental resources of the South,” stressed letter co-coordinator Lidy Nacpil from the Asian People’s Movement on Debt and Development.