Debt in Africa: To forgive and forget or to keep asking?

African leaders are pushing ahead with calls for debt cancellation even as it turns out each country may lobby its own bids to have the burdens eased amid the Covid-19 pandemic.

Choked with monies borrowed mostly from China and multilateral lenders such as the World Bank, the novel coronavirus disease has added the possibility of countries' inability to service debts or essentially being forced to pay up and ignore health emergencies.

Ethiopia, Kenya, Senegal and South Africa have recently supported those calls, saying it could make the difference between saving humanity and its economies, or risking death.

Writing in The New York Times on Thursday, Ethiopian Prime Minister Abiy Ahmed argued his country was facing a “dilemma” between paying debts and attending to the sick, both of which cost money.

“Do we continue to pay toward debt or redirect resources to save lives and livelihoods? Lives lost during the pandemic cannot be recovered; imperilled livelihoods cost more and take longer to recover,” he said.

ABIY'S PLEA

Ethiopia, which had recorded 145 cases of Covid-19 and five deaths by Tuesday, says it has been spending nearly twice its health budget to service debt.

“These steps (of debt cancellation) need to be taken with a sense of urgency. The resources freed up will save lives and livelihoods in the short term, bring back hope and dynamism to low-income economies in the medium term and enable them to continue as the engines of sustainable global prosperity in the long term.”

Dr Abiy, a 2019 Nobel laureate had been instrumental in March, writing to the G20, the world’s richest countries, ahead of their summit to consider forgiving debt poorest countries in the world owe them.

In mid-April, the leaders announced they were offering a suspension on repayments this year, to about 60 countries considered poorest. Half of those countries are in Africa.

Dr Abiy has argued the offer is welcome but maybe insufficient as it isn’t clear just how long the pandemic will last.

However, his call has been amplified in subsequent virtual meetings by African leaders, who say more multilateral and bilateral lenders should consider easing debt obligations.

BREAKDOWN

South African President Cyril Ramaphosa, also the chairman of the African Union, said last week that the pandemic was already causing a breakdown of economies in Africa, even before its full impact was felt.

“We are confronted with an unprecedented public health crisis, which poses a real existential threat, with far-reaching socio-economic consequences,” he told a virtual meeting with AU regional executive Committee chairpersons.

“We also argued for a waiver of all interest payments on multilateral and bilateral debt. This would provide the necessary fiscal space for African governments to devote all available resources to response and recovery.”

When he met with the Bureau of the African Union earlier in April, Mr Ramaphosa said leaders had established the AU Covid-19 Response Fund, “to raise additional funds for the Africa Centres for Disease Control and Prevention and intensive lobbying of the international community for economic stimulus package for Africa.

The fund has since raised $25 million, and another $36.5 million for the Africa CDC. 

Nigerian former Finance Minister Dr Ngozi Okonjo-Iweala, Dr Donald Kaberuka of Rwanda, Mr Tidjane Thiam of Côte d'Ivoire, Mr Trevor Manuel of South Africa and Mr Benkhalfa Abderrahmane of Algeria have been tasked with lobbying for further better terms for Africa.

DEBT TRAP

Some experts think the pandemic has only enhanced calls for what is necessary for Africa.

Mr Leonard Wanyama, Coordinator, East Africa Tax and Governance Network in Nairobi told the Nation that debt, especially from China, has been on the minds of African leaders, as the public raises concerns.

“In Kenya this is founded on the concern that China could have engaged in 'debt-trap diplomacy',” he said, referring to reports of Kenya’s potential inability to service the Standard Gauge Railway, and reports China could attach the port of Mombasa.

Both Kenya and China deny such a clause exists in the deal but neither side has ever published the agreement.

Mr Wanyama, however, thinks there could be political benefits for China if it agrees on debt cancellation.

“If China offers further debt cancellation it will help push back on the ‘debt-trap diplomacy’ narrative,” he said of accusations mainly by the US administration.

“It will also show leadership in how to deal with poor countries as they face the challenges associated with the coronavirus pandemic.”

FAST GROWTH

Africa had been seen as having some of the fastest growing economies in the world, before the pandemic.

Now the World Bank has warned those very economies could shrink and a burden to pay debt could further lower priorities for health spending.

In a teleconference with a group of African journalists on Monday, US Secretary of State Mike Pompeo argued each country’s situation will have to be analysed individually to see if it should be forgiven.

“Each of the situations on the ground - it is not unique to that country. It is not unique to any country and it's not just Africa,” he said.

“There are other places around the world, including some poor countries and some that are just going to struggle as a result of the pandemic. There are going to have to be financial readjustments.”

Mr Pompeo challenged China to consider giving the continent debt relief during this time as it had “imposed” debt on the continent.

“It is something that the African countries should consider, too, in asking China to [give] debt relief on some deals that have incredibly onerous terms that will impact the African people for an awfully long time, if relief is not granted,” he said of China’s estimated $145 billion debt owed by African countries.