Moderator 

• Marilou Uy, Resident Senior Fellow at Boston University Global Development Centre and formerly Head of the G24 Secretariat

Panelists

• Father Charles Chilufya, Jesuit priest, Director of the Justice and Ecology Office of the Jesuit Conference of Africa and Madagascar
• Dr Martin Guzman, Professor at the School of International Public Affairs, Columbia University, Served as Minister of the Economy, Argentina from December 2019- July 2022
• Mr Flanagan, Deputy Director, IMF Strategy, Policy and Review Department 
• Mr Bandiera, Acting Head of World Bank Global Debt Team

Marilou: Begin with honouring Pope Francis whose legacy encompasses tackling the issue of debt, climate and development as a way to a just world. Stated that foreign debt has become a means of control, exploiting the human and natural resources of the developing world by the developed world. He and previous popes saw the jubilee year as an opportunity to solve the problems caused by debt. This is a critical moment of sovereign debt and development distress. According to UNCTAD 3 billion people live in countries where debt repayments exceed social spending. This is a development emergency globally. The challenge is not one time solutions but systemic ones that will avoid future cycles of debt and distress. Re-imagine a global financial architecture that will better serve people and planet

This will involve reforms of international financial institutions (IFIs) such as the IMF and the World Bank Group (WBG) as well as the creditor community, to ensure responsible lending and borrowing, greater transparency and fairer debt resolution mechanisms.

This session will explore concrete proposals for reform and amplify calls for a fairer and more functional system.

Father Charles: A deeply significant moment for the world. Pope Francis relentlessly called for a more just and more humane world, and named the moral failures of the International financial system and the global order. In particular, it’s not right to demand repayment of debt when it means denying people the essentials of life.

Today’s financial architecture reflects an economy that kills, today we need systems that do not kill but give life, to restore dignity and serve the common good. In this spirit, debt justice is a defining issue of our time.

Jubilee 2025 is a sacred call, a summons to radical justice rooted in Leviticus 25 of the Bible, it calls for release of captives, forgiveness of debt and the granting of rest from the burdens of economic oppression and poverty.

Confront the global debt systems that holds nationals of the South, especially Africa hostage to poverty. Poor and rich are outcomes of economies and structures that further some and burden others by design. Why should creditors and wealthy nationals care? Because jubilee is about justice. Society cannot thrive when inequality is entrenched, when some are rich and some survive on crumbs of austerity. It’s a call to shared humanity, a reminder that peace and prosperity are fragile when built on the suffering of others. It’s a reset not only of accounts but of conscience.

Economic systems must exist to serve people, to uphold human dignity yet over half of African countries, more than half, are in or are nearing debt distress – it’s a crisis, with many forced to spend more on interest payments than on healthcare and education.

These are not statistics, they are a sad reality. This is not just a policy failure, it’s a moral and structural scandal that we can correct. A form of economic violence that protects creditors and punishes the poor. An economy that kills and the Bible says thou shalt not kill.

This debt is not just statistics but has a human face, behind every debt repayment we see it up close. In real time. We see in rural areas in Kenya a mother as she clutches her swollen belly only to be told there is no pre-natal care today, the lights are off, medicine shelves are empty. I remember seeing in Zambia a young woman with cancer lying silently in a hospital bed, her pain untreated, her family helpless, not because a cure doesn’t exist, but because the drugs are only found in the private hospital where they are priced beyond their reach.

When developing countries send the little they have to foreign creditors and teachers go unpaid for months, children go hungry – we need to change this. If the institutions we have like the IMF and the WBG do not serve the majority we must have conversations on how this must change.

May Pope Francis’s memory be our guide.

Martin Guzman: Thanks for your thoughtful remarks and remarks of hope. I join you in commemorating Pope Francis. He advocated an economy based on markets that serve the common good, and he was particularly concerned with the debt and development crisis especially in low and middle income countries (LMICs).

He asked Professor Stiglitz and me to create a jubilee commission on ways forward and on how the international financial system should be organised to prevent the crisis from recurring. Twenty five years ago we had the Heavily Indebted Poor Countries (HIPC) programme and we are here again. There are different characteristics but a common problem – the debt crisis leads to a development crisis.

A very large fraction of countries are spending more on debt service today than on health and education and while we do see inflows from IFIs that are supposed to play a counter-cyclical role, a stabilising and development role, at the same time we see outflows to other creditors. So financing that should be used for development is being used as a bailout mainly for private creditors and to a lesser extent bilateral creditors – this is deeply concerning

There are three parts to the problem: Firstly, The debtors – they decided to borrow in foreign currencies at times in which there was access to financing; secondly the creditors who decide to lend searching for higher returns; thirdly the system of IFIs who could enact policies to make sure that their funding is not being used to bail out creditors who hold unsustainable debts.

This universe of creditors is different from the 1990s and early 2000s. There is a need for debt operations, in some cases including in countries with low debt stocks, extension of maturities and reduction of interest rates, taking them closer to WBG lending rates. In some cases countries are in deeper trouble and they need reduction of the principal. But for this to work, there should be a no bail out condition, especially with the lending of the IFIs, especially IMF.

There are pervasive agency problems meaning that the debtor also has an incentive to postpone and pass on the problems to the next government and the creditor in being bailed out.

There is a need for reform in the legislation of the countries in the jurisdiction in which debt is issued, mainly in New York State. Three issues; One is reducing the absurd compensatory rate of 9 per cent which has to do with the fact that there is no bankruptcy court for sovereigns in distress. Secondly, prevent the opportunistic behavior of vulture funds, thirdly ensure that the treatment of different creditors are comparable – global taxpayers don’t get a worse deal than private creditors in sovereign debt restructuring.

Pope Francis called last June for the creation of a multilateral mechanism for restructuring of sovereign debt.

When it comes from incremental reforms, lending rates from IFIs are pro-cyclical. When there are problems in the global economy for developing countries, financing becomes more expensive – there should be another way.

Proposal to bring debt relief, for the creation of a fund, probably at the IMF, for the repurchase of debts in distress, for access to liquidity with specific purpose, which trades at a much lower value, that would mean debt reduction and improve the situation.

I was asked to speak about Argentina – which may not be representative of other cases of countries in the multilateral financing arena. It’s the country with the largest debt with the IMF. In 2018 it reached an agreement with the IMF for 50 billion dollars denominated in SDRs, which then rose to 57 billion out of which 44.5 billion was dispersed in 2018 and 2019. That financing was almost entirely used to finance capital flight, and to meet payments of the bond holders of a debt that was then considered to be unsustainable and had to be restructured. After a currency run the government has now asked the IMF for a new loan.

The IMF is supposed to follow rules for exceptional access. There is a lot of subjectivity in the application of these criteria. For example, debt has to be sustainable. Criteria number four states that there has to be broad political support and institutional capacity. The law in Argentina says that any loan has to be approved by the national congress, to prevent one government from borrowing huge amounts without the involvement of parliament. The government escaped the law through an executive order and the finance minister said on the record that they didn’t go to the senate because they didn’t have the majority of votes. This creates a problem of legitimacy.

IFIs lending should not be seen as politically motivated. This is very important for the health of the global system.

Mr Flanagan: There was debt relief twenty five years ago, how is this a problem again? You have to look at the underlying reasons. Firstly insufficient flow of Overseas Development Assistance (ODA) to Low Income Countries (LICs) and developing countries on concessional terms – last year major donors such as the US and the UK have stepped back and are dramatically cutting development assistance. In the absence of that you invite recurring debt crises. Secondly, there is an ongoing governance crisis in low income crises. Firstly, inability to invest, if Nigeria has managed to invest like a European country since the 1960s, it would have had the benefits of a Western European country. So what went wrong? Thirdly, it’s very difficult to tax the rich anywhere, in developing countries it’s impossible. If the country can’t take the resources for development and convert them into human capital then there will be recurring debt crises.

What is our take on the situation? if you had asked me two months ago, I would have said there is a brewing liquidity crisis in a number of countries, and a solvency crisis in a smaller number. That’s contingent on R-G (real interest rate minus real growth rate). High interest and low growth tends to create debt problems. And the level of spending countries can do a politically and socially sustainable way. The latter remains an issue – what’s the level of spending that countries need, that’s sustainable? The answer may differ from country to country.

In the interim of two months ago to today, we’ve seen a big shock to the global economy that seems to have lifted R and reduced G. Our World Economic Outlook is being published today. How permanent is this shock? If it sticks around for a number of years, a lot of countries are going to be in debt.
To what degree are we going to see a reorganisation of the trade system and how much will it spill over into the monetary system? These are open questions. But risks of the debt crisis are higher. Agree that there have been significant changes to the creditor system of twenty five years ago, now the picture is more complex. It took a number of years to arrange HIPC and MDR. Now, the road for debt relief runs through Beijing which is considering debt relief on a case by case basis.

Raises the question of what can be done in the short run? Pressing debt service pressures. What is the Fund doing? Trying to improve the debt architecture, made a number of changes to debt policies to try to better incentivise creditors to reach agreement of a sufficient amount and timeframe. Upgrading the Debt Sustainability Assessment Framework (DSA), supporting official creditors through a sovereign roundtable and we’re working on a paper on the architecture for the resolution of privately held sovereign debt.

Three things to pick out: sharpen DSA frameworks. They were set up to focus on one side of the debt relief distribution, don’t focus on fiscal space, for social spending, climate and Sustainable Development Goals (SDGs). Secondly sharpening Fund lending policies to help ministers avoid too little too late decisions. Our Independent Evaluation Office (IEO) wrote a report on the Exceptional Access Policy which we’ll be reviewing.

Thirdly, better articulate the relative roles of enhanced contractual provisions versus certain statutory approaches like recovery legislation in handling the resolution of privately held sovereign debt. Have to do it in the right way, because if you’re not careful you’ll fail to achieve anything because it’s easy for creditors to shift jurisdiction. And you may affect market functioning.

Middle Income Countries (MICs) are a particular challenge there because they’re not eligible for concessional financing so they have to go to the market, and they need technical capacity, ability to handle credit rating agencies and creditor relations. Need Domestic Revenue Mobilisation (DRM), if you collect more in revenues, debt carrying capacity will rise. And you need appropriate buffers – foreign reserves and fiscal deposits at the central bank. There is technical support from the IMF. Also, extended fund facility, and surcharge reform which has very considerably reduced interest rates.

Mr Bandiera: Agree with Mark. We are in a situation that has profoundly changed from what was going on before. In the past 30 years we have seen a major reduction in the number of countries we would count as LICs – from 66 in 2001 to 31 today. Extreme poverty also fell, from 30 per cent to 10 per cent.

These trends have reversed over time for different reasons. In 2015 there was a big slump in commodity prices and has continued after Covid. We see reversed the growth of the last decade.

Deficits have increased not just after Covid. After HIPC they had fiscal space and they had space to borrow so they did and even in the context of very low interest rates after the Global Financial Crisis (GFC) when interest rates were basically zero and new creditors were available, the amount of spending was high and the countries did not make progress in increasing revenues.

This situation is how countries entered the Covid crisis, and in a deeply changed creditor landscape we have two years of negative net flows in the IDA countries, from big bilateral creditors and private creditors.

The role of IFIs – WBG and IMF stepped in and provided a very large amount of financing. IDA completed the largest ever replenishment, 100 billion, a big achievement, and shows the power of multilateralism, funding on highly concessional terms. WBG and IMF adopted the DSA framework to guide the borrowing and lending decisions of countries and creditors. IDA provides grants to the poorest countries. We have provided a very large amount since Covid – 75.6 billion dollars to the countries that structured their debt under the common framework.

We know this is not enough, we need to do more to help these countries and the WBG has adopted reforms often jointly with the IMF. Looking at helping countries increase DRM, mobilising private capital, enhancing crisis preparedness and resilience. Countries are becoming more vulnerable to crises and climate change.

Focus on jobs and growth, creating more good paying jobs. Firstly, establishing basic infrastructure preconditions, secondly regulatory reforms and third enable private sector and access to finance. Considering the interventions earlier, the WBG and IMF have worked proactively to try to improve the debt resolution system.

Through the Global Sovereign Debt Roundtable we are trying to improve the processes and we can measure this from the amount of time it took for new financing has actually halved. For example, in the case of Sri Lanka, it was much faster than Suriname which was outside of this framework.
Common Framework – everybody said it does not work, and we are still working on some issues, like how to solve debt that is not bonded – ie out of the Eurobond. These require practical solutions. Countries are facing liquidity risks, WBG has also worked on its Financing for Development paper.

Three pillar approach – DRM reforms, mobilise low cost financing (IDA), to help countries with debt for development swaps. Operation in Côte d’Ivoire last year and Benin this year. Reducing the debt service burden and freeing up resources. If we can agree that many more countries face a liquidity crisis rather than a solvency crisis, still the liquidity crisis could turn into a solvency crisis. We feel the urgency and are working proactively in many countries.

There is still a debt reduction facility managed by the WBG – one of the oldest funds and something that the WBG is thinking about revitalising.

Questions and answers

Marilou: Global prospects are fairly grim but we must think of how to put countries on a better pathway to improve their debt sustainability. There are specific things that can be done but there are also broader issues involving the architecture that involves multilateral players, and what to do about financing.

Question 1: Question about the impact of dramatic reduction of ODA – will mean that countries need to borrow a lot more money. With that 60 or 70 per cent of ODA disappearing, how is that big surge for concessional finance being prepared for?

Question 2: Regarding Nigeria, removal of fuel subsidies, the entire country has been thrown into a mess and everyday we read that the government has another loan from the IMF. The government is living large and the people are suffering in poverty.

Question 3: In Kenya, we’ve been to the IMF about 17 times, the last time was 2 years ago. Inflation was 54 per cent and the debt was becoming unsustainable. The role IMF and WBG played in this has been that civil society is not deeply involved in negotiations on these processes so we come to the table very late. We see citizens always against the IMF and the WBG and they see it as regime change.

Pattern of conditionalities attack the social sector, health, education and employment. So we are now talking about the next phase of Jubilee – what strategy are you going to introduce to make sure that civil society is better engaged in this process?

Question 4: In South Africa the issue of DRM is a problem. What I would like to hear is where have you seen examples of countries that have been able to reverse poor performance over time? Is there anything in the way that you engage with countries that provides an incentive or conditionality that moves them in this direction?

Question 5: Uganda debt burden and debt economy. We have a regime that has been in power for 39 years and keeps borrowing. Anti-homosexuality law and violence in 2021 elections – when does the question of human rights come into the principles of the UN? Why is the UN silent, why is it hard for institutions to carry out independent audits before they give these funds again?

Question 6: In Ghana, normally when the IMF comes to our countries, engagement with CSOs is usually at the tail end of the missions. We wonder how we can influence programme design. By the time they meet us the parameters are already set with the authorities.

Mr Bandiera, WBG: Question on DRM, there have been cases that we can use, that reforms so far have focussed on two main aspects, tax policy and tax administration – broadening the tax base and closing loopholes. Many countries invested heavily in IT systems, simplifying the system. But very little progress in the past ten years in the ability to collect taxes, especially in low income countries. On engagement with CSOs – normally the WBG does this, spent time in South Sudan and Uganda and met CSOs very often but I get the criticism. It’s often not a particularly structured dialogue.

Mr Flanagan, IMF: On CSOs we have resident reps in most countries, that’s a better way to be involved at the beginning of a mission. On human rights, that’s tough because of the Fund’s mandate – it doesn’t give us leeway to think about these things. ODA, we’re watching the impacts, governments face a very difficult choice of what do we do. Cut programmes or find other ways to finance them through concessional financing or DRM.

Dr Guzman: On Argentina, I understand the lack of answers. We’ll look into the WBG debt reduction facility. Buybacks for debt distress will get wide support. Relationship between the IMF and engagement with CSOs, involvement of the citizens as a whole. At the commission we are pushing developing countries for adoption of legislation that requires parliament for borrowing decisions of foreign currencies. But the IMF must respect that.

Father Chilufya: Ethics is not just about rules and laws, it asks the question, how do we live well? Big countries should ask themselves this. Debt relief was a decision, these things can be done if we ask the question, if we don’t have tax evasion, if we don’t have 3 billion of money leaving one continent to the other, when 100 billion dollars of SDRs went to rich countries, how do we live well?