Some African countries are opting to negotiate debt relief individually with China and other rich nations because of concerns they will be blocked from financial markets by the G20 debt deal to help poorer countries get through the economic shock of the coronavirus pandemic.
The deal, to suspend debt payments to the end of the year for the world’s poorest nations, was agreed in April, but private lenders – who hold US$154.9 billion of the total long-term debts of sub-Saharan countries, estimated at US$493.6 billion have rejected its blanket approach to debt relief.
The G20 finance ministers invited private creditors, working through the Institute of International Finance, to participate in the initiative on comparable terms but the lenders have insisted they will negotiate with African countries on a case-by-case basis, a stand also favoured by Beijing. The G20 has
no power to force them to take part in the deal.
The response from eligible countries has also been lukewarm, because of a clause that blocks countries requesting relief from
“contracting new non-concessional debt during the suspension period, other than agreements under this initiative”.
Kenya has rejected the proposal and several low-income countries have also been reluctant to take up the offer.
Kenyan treasury cabinet secretary Ukur Yatani has said his country will negotiate at a bilateral level with China, France, Germany, Sweden and Japan to secure a moratorium on debt service payments for around a year, citing fears the G20 offer may lead to a downgrade of Kenya’s credit rating that could
limit its access to loans at favourable terms from international finance markets.
Only 22 of the 77 nations eligible for debt relief have requested it, according to the International Monetary Fund. Mali is among the countries to receive debt relief from the G20 and the Paris Club, a group of major creditor countries.
Virag Forizs, emerging markets economist at London-based Capital Economics, said the modest uptake of the G20 offer “could be indicative” of the fears expressed by low-income nations about their future credit ratings and access to international private finance.
“Kenya’s example suggests that this was the reason for opting out of the G20 debt service suspension deal,” she said.
As countries shun the G20 deal and private creditors decide to play hardball, analysts say China’s role will be an important one to watch. China’s agreement to participate in the G20 deal suggests that Beijing is on board with bilateral debt relief to lower-income economies,” Forizs said. However,
“were China to renege on the deal or play hardball with debtors, that could be damaging from a reputational point of view”.
Last week, while addressing the World Health Assembly, Chinese President Xi Jinping said Beijing would work with other G20 members to implement the debt service suspension initiative for the poorest countries.
“China is also ready to work with the international community to bolster support for the hardest-hit countries under the greatest strain of debt service so that they could tide over the current difficulties,” he said.
However, analysts said Beijing had always been a reluctant participant in any international “development enterprises” and China’s foreign ministry also said recently that, while it had never pushed any country into financial difficulty over repayments, it would respond to requests for debt relief
only on a case-by-case basis. Jan Friederich, an analyst at Fitch Ratings, said in a recent note that negotiations on bilateral debt relief under the G20 framework might be complex, particularly given the rising importance of non-Paris Club
creditors – in particular China – which had not previously engaged in collective official sector debt-relief initiatives.
Friederich pointed to World Bank estimates that, of the US$14 billion bilateral debt service payments due in 2020 from eligible countries, only US$4 billion was owed to the Paris Club’s mostly Western creditors.
“We believe China accounts for a large part of the remainder,” he said.
China does not publish its overseas lending data, but figures from the China Africa Research Initiative at the Johns Hopkins University School of Advanced International Studies in Washington indicate China advanced more than US$143 billion to 49 African governments and their state-owned companies between 2000 and 2017. The London-based Jubilee Debt Campaign, which is pushing for loans to the poorest countries to be cancelled, says China is Africa’s largest bilateral lender, holding more than 20 per cent of Africa’s total
debt. Its head of policy, Tim Jones, said the G20 agreement was welcome, but warned it could create another debt crisis.
“Because this debt still needs to be paid between 2022 and 2024, it just builds up a bigger debt crisis in the future. The debt payments should be cancelled rather than suspended,” he said.
Jones said there was a danger that any support given to African governments would be spent on paying high-interest loans to private creditors, and not as intended to help those countries through the crisis. Further, the countries worst-hit by the crude oil slump might need debt cancellation from China to survive the impact of the coronavirus pandemic.
David Mihalyi, a London-based senior economic analyst at the Natural Resource Governance Institute, said the G20’s temporary debt relief would not do the trick for oil-dependent countries in Africa.
“They are facing a permanent shock and many of them would need debt restructuring and a complete renewal of their economies.”
Mihalyi said good examples of the problem were Angola and the Republic of Congo – oil-reliant nations that had taken loans from China through a financing model called “resource-backed loans” in which repayments are made through future oil revenues. Gyude Moore, a senior policy fellow at the Centre for Global Development think tank in Washington, said the Kenyan example showed that
“most African countries will eschew demanding blanket debt
waivers and engage private creditors around the suspension of interests payments and restructuring existing debt”.
Moore, who previously served as Liberia’s minister of public works, said China preferred to engage on a bilateral basis.
“I can’t imagine China changing that outlook now. I expect China to restructure debt with its partners on a case-by-case basis,” he said.