Global debt justice is a pressing issue. Globally, 54 countries are in a situation where debt payments undermine their ability to protect their citizens rights. The Cross Party Group for International Development, which the Alliance provides the secretariat, met recently to discuss the issue of debt, with a particular spotlight on Zambia which has recently received a $1.3billion loan from the International Monetary Fund.
MSPs, and other interested parties, were joined by three speakers providing different perspectives. Eugene Kalibika joined the meeting online from Zambia, as the former director of Caritas he was able to give an insight into the impact of the economic crisis on people in Zambia. Shona Rhiach joined the meeting online from Washington in her role as UK director of the IMF. Line Christensen from Jubilee Scotland was our in-person speaker, shining a light on the global debt crisis and presenting some actions for fairer systems that MSPs could take on.
In 2011 Zambia’s debt was at $1.4billion and by 2019 it was $14.1 billion
Eugene began by explaining the past response to debt crisis in Zambia. In the 1990s Zambia had accumulated significant debt of $7.2 billion. The church and civil society groups campaigned for debt cancellation, and in 2005 Zambia finally agreed the HIPC initiative which reduced the debt to less than $900 million.
For a ten year period, thanks to good governance and a fight against corruption, Zambia experienced economic growth, and in 2011 attained low-middle income country status. However increased spending on infrastructure and a collapse in copper prices followed by drought, put pressure on the country’s economy resulting in borrowing from private lenders.
By 2019 commercial debt accounted for 50% of Zambia’s total debt stock. IMF figures show that in 2011 Zambia’s debt was at $1.4billion and by 2019 it was $14.1 billion.
And by 2021 the government allocated more money for debt servicing than education, health, water and sanitation combined. Debt servicing crowded out productive sectors such as agriculture and manufacturing. High debt servicing meant that Zambia failed to employ new teachers and health workers; provide clean water and sanitation to vulnerable communities; and supply health centres with essential medication. Buildings meant for schools and health services were left unfinished. Inequality and the cost of living increased.
In August the IMF board approved a 38 month programme for Zambia worth $1.3 billion
Shona explained the IMF’s role in addressing crises such as Zambia’s. The IMF has a central mission to support the financial stability and health of the international financial system and lending is just one part of that.
IMF rules only allow lending where debt is sustainable or where the country is on a path to sustainability. This presented a stumbling block for Zambia so debt restructuring was required, which is where the G20 Common Framework comes in.
The Common Framework provides a process for debt restructuring, bringing in all G20 countries, unlike the Paris Club which primarily included G7 countries. The Common Framework committed to coordination of debt relief and was heralded as a hope to provide relief to countries like Zambia, but so far has under-delivered.
However, Zambia has now achieved the first stage in the framework, with bondholders establishing a creditor committee. In August 2022 the IMF board approved a 38 month programme for Zambia worth $1.3 billion. This is important because it will provide desperately needed money to help finance Zambia’s budget including social spending to help poorest in society, and also because Zambia is the first country to reach this stage under the Common Framework.
1 out of 5 LMIC spent more on debt services than education, health and social protection combined
Line Christensen from Jubilee Scotland explained that Zambia’s situation is not unique. External debt stocks in low and middle income countries (LMIC) total $8.7trillion, and external debt payments averaged 14% of government revenue in 2021, compared with 7% in 2010. Lower income countries are spending 5 times more on debt repayments than on climate action, and 1 out of 5 LMIC spent more on debt services than education, health and social protection combined.
The crisis is made worse by the shortcomings of the legal frameworks, and lack of global collective action on debt. This landscape opens the field for lenders to pursue their own geopolitical agendas. 12% of debt payments made by LMIC go to China. These new actors are able to secure exclusive access to resources and to lock them into debt arrangements beyond the reach of traditional debt governance levers.
Another issue is the lack of appropriate mechanisms to deal with debt owed to private creditors. 47% of external debt payments made by LMIC are to private lenders. Private creditors are also not included in the Common Framework.
Line then outlined some solutions, despite the complexities:
- Firstly, a multi-lateral debt workout mechanism, ideally under the UN. This could provide timely, just and equal treatment to sovereign debt crises.
- Secondly, the IMF need to provide clear guidelines and more realistic assessments. They don’t have a clear definition of what sustainable debt should be, and have been historically unrealistic about how much countries can repay.
- Thirdly, we need more transparency. Line called for a public register for private to sovereign debt agreements and more oversight for trading of sovereign bonds.
- Fourthly, new, additional and better quality climate finance so that countries are not forced into further debt by the climate crisis. 70% of climate finance is provided as loans forcing countries into deeper debt.
- Lastly, the UK could pass laws to make collaboration with private creditors easier. Around half of international private debt contracts and 90% of bonds of countries eligible for the Common Framework are governed by English law.
Line concluded her presentation with some suggestions for MSPs and the Scottish Government.
They could:
- Call on the UK government to pass laws to make collaboration with private creditors easier.
- Raise the matter of debt and what the UK’s role could be with the UK Minister for Africa.
- Follow up on the House of Commons enquiry into debt relief in LMICs, asking the Scottish Government to call for the UK to act on evidence that has been submitted and to be ambitious.
- Open lines of communication with partner governments and civil society to discuss debt levels.
- Keep pushing Loss and Damage including the First Minister’s message that the climate crisis should not put countries into further debt.
- Call for private creditors with groups in Scotland such as BlackRock to offer debt cancellation to countries that need it, and ask them to participate in the Common Framework on comparable terms.
The meeting chair, Sarah Boyack MSP, agreed to take away some of these actions and encouraged others in the meeting to raise the issue with their own MSP.
As for Zambia, Eugene remained helpful that the new Public Debt Management Act would ensure accountability in the management of public debt, but emphasised the need for Zambia to learn from past mistakes. Shona was also positive, in that Zambia has a reform minded President and has introduced far reaching reforms to support fiscal responsibility and human development. The IMF funding at least provides some breathing space and perhaps the wider structural changes that Line and others are calling for will result in a positive economic future for Zambia.