The news that Ghana has defaulted on its external debt is sending shivers through the continent. It immediately raises questions about how the Ghanaian people will overcome the crisis and which country could be next. In response to the default, today’s newsletter examines the debt issue from multiple sides.
Ghana’s default forms part of a global wave of debt distress. It was partly caused by a sharp spike in commercial lending by many governments, which was then flipped into a crisis by external factors like the COVID-19 pandemic and the Ukraine war. While these crises were generally not caused by China’s much-increased lending to poor countries over the last two decades, Chinese loans certainly contribute to the load.
In addition to the financial impact, Beijing’s lending adds significant political complexity to restructuring processes. Untangling the political implications is a key barrier to evolving better solutions for debt-distressed countries. How this will shake out is far from clear. The fact that Beijing has so much skin in the game could help to bring about new measures for dealing with debt distress. A Chatham House report featured below outlines what that might look like.
However, it also points out that a realistic solution will have to extend far beyond China to also deal with long-unresolved issues between the Paris Club of traditional lenders and their own private sector.
The centrality of Eurobonds and commercial debt, mostly held in Western capitals, remains a little-discussed part of the crisis. Today’s podcast conversation with the researchers Umesh Moramudali and Thilina Panduwawala helps to make this clear. It’s a companion to their recent paper for the China-Africa Research Initiative, arguably the most comprehensive account of the Sri Lankan crisis to date, and an absolute must-read.
Debt looks set to be a key issue in 2023. Today’s newsletter provides a head-start to those conversations.
