By Daniel Bradlow and Magalie Masamba
The COVID-19 pandemic has had a particularly profound adverse impact on Africa’s sovereign debt situation. Currently, 22 low-income African countries are either in debt distress or at high risk of debt distress. This situation is likely to be exacerbated by the war between Russia and Ukraine, which is causing commodity prices (particularly food and gasoline) to rise and is disrupting the supply chains of critical goods like fertilizers.
The continent’s ability to meet its debt challenge is complicated by the changing composition of the debt that has occurred over the past ten years. In 2020, sub-Saharan Africa had a total external debt stock of $702.4 billion, compared to $380.9 billion in 2012. About 60% of Africa’s external debts is owed to its official creditors. In addition to its traditional official creditors, the group now includes lenders from the Global South like China, India, Turkey and new multilateral institutions like the African Export-Import Bank and the New Development Bank. In addition, Eurobonds now constitute approximately 20% of the total stock of debt.
Against this backdrop, our new multi-disciplinary book, COVID-19 and Sovereign Debt: The Case of SADC, focuses on the issue of African sovereign debt management and renegotiation/restructuring, with a particular concentration on the countries that are members of the Southern Africa Development Community (SADC). It contains a series of essays that were initially presented in several virtual workshops held in 2020 at the height of the pandemic, which seek to both understand the debt challenges facing SADC and offer policy-oriented recommendations.
The collection includes contributions from international experts and southern African researchers, whose contributions discuss the complexities of debt management and restructuring, both generally and in SADC member states within the context of the global COVID-19 pandemic.
Intended to stimulate debate among academics, activists, policymakers, and practitioners on how SADC should manage its debt, the book offers five key recommendations:
1. Debt transparency: The countries in the region should adopt comprehensive debt data disclosure requirements and state borrowing procedures that are transparent, participatory, and that facilitates holding the relevant decision-makers accountable.
Debt transparency is the cornerstone of reforming debt management. This requires developing national debt disclosure initiatives as part of fiscal management. Other requirements include participation, as appropriate, by all stakeholders and accountability. Countries should share debt-related information with their creditors, the multilateral financial institutions in which they are member states, and should make the information publicly available through national platforms.
2. Good governance: National debt management policies should be strengthened to deal with issues of governance.
Debt management frameworks and practices of states should conform to all the principles of good governance – transparency, participation, accountability, reasoned decision-making, and effective institutional arrangements.
3. Legal predictability: Contractual provisions in debt contracts should be strengthened.
Debt is a contractual relationship. It is therefore important for both the debtor and its creditors that their contractual arrangements are as comprehensive as possible. This means contracts should fairly allocate risks between the parties according to who is better able and more willing to accept the risks and should provide the parties with clear answers to issues that could arise between them. Consequently, SADC policymakers should provide guidance to their debt managers on the terms and conditions they can accept in contractual negotiations.
4. Comparability of treatment: Ensure that where needed, restructuring of sovereign debts is conducted with all creditors participating on comparable terms.
SADC sovereign debtors should offer all creditors comparable treatment and demonstrate they are doing so. This will both enhance creditors’ confidence in the debtor and give them comfort that any relief they provide will benefit the debtor rather than other creditors.
5. A comprehensive approach: Sovereign debt management and restructuring should be treated holistically.
Sovereign debt is not just a financial issue; it has implications for the social, political, economic, cultural, and environmental situation in the debtor country. It requires a comprehensive approach to debt restructuring that incorporates all relevant stakeholders and addresses all necessary issues, ranging from financial sustainability to the social and human rights and environmental impacts of the restructuring.
Daniel Bradlow is the SARCHI Professor of International Development Law and African Economic Relations at the University of Pretoria, South Africa. He is also Professor Emeritus of Law at American University, Washington College of Law in Washington, D.C.
Magalie Masamba is a Global China Post-doctoral Research Fellow at the Boston University Global Development Policy Center and the Post-doctoral Fellow with the University of Pretoria’s Centre for Human Rights.