EA states embroiled in lender debt relief fiasco

By JAMES ANYANZWA

East African countries face increased pressure to service their loans after the world’s richest countries executed a botched debt relief plan that pushed more than half of poorest countries in the world in external debt distress.

The Debt Service Suspension Initiative (DSSI) of the 20 richest economies in the world, commonly known as the “G20”, has not helped poor countries stave off the devastating effects of the Covid-19 pandemic so that foreign creditors, especially banks and pension funds, still demanded. to have their loans repaid.

Research by Jubilee Debt Campaign, a UK-based coalition of national organizations and local groups calling for the cancellation of the unfair and unpayable debts of the poorest countries, reveals that low-income countries that have demanded debt relief ended up spending $ 36.4 billion in external debt. refunds versus a paltry $ 10.9 billion, which was either suspended or canceled.

Private creditors received the largest amount of debt repayment, $ 14.9 billion, and suspended only 0.2% of payments.

Unconvincing pitch

“Failure to include banks, hedge funds and oil traders in the flagship G20 debt suspension program has made a mockery of this initiative. Tens of billions of dollars poured in from low-income countries at a time when they were desperately needed to protect lives and livelihoods, ”said Tim Jones, policy manager of the Jubilee Debt Campaign last week.

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“During this time, the program effectively became a rescue program for private lenders, as the suspension of debt by public lenders allowed financiers to continue to be paid,” he added.

Figures released by Jubilee Debt Campaign show that EA countries are among the poor countries in the world that have been hit hardest by the failed G20 debt relief plan.

Tanzania managed to suspend repayments of just three percent of its external debt which stood at $ 301.4 million in June this year, followed by Kenya (10 percent), DR Congo (20 percent). percent), Uganda (27 percent) and Burundi (42 percent).

Kenya’s public debt rose to Ksh7.7 trillion ($ 70 billion) in June, from Ksh 1.5 trillion ($ 13.63 billion) in June 2011, as the government borrows heavily to finance a deficit. budget which has represented on average 7.4% of gross domestic product (GDP) over the past 10 years (2011-2021).

In June, Kenya’s external debt stood at Ksh4 trillion ($ 36.36 billion), and domestic debt at Ksh3.7 trillion ($ 33.63 billion).

Analysts and Cytonn Investment Kenya are slipping into debt distress with a debt-to-GDP ratio of 67.5% in June 2021, compared to the IMF’s recommended threshold of 50% for developing countries.

Uganda’s provisional stock of public debt stood at 70.38 trillion shillings ($ 19.46 billion) in June, while Tanzania’s stood at 887 billion tsh (385.08 million tsh. dollars) composed of external and internal debts of 692.9 billion tsh (301.4 million dollars) and 194.1 billion tsh (84.26 million dollars) respectively.

“A major risk with increasing debt is the higher cost of financing. The debt service / domestic revenue ratio has steadily increased to reach 24.6% in June 2021, against 22.4% and 21.7% in June 2019 and June 2020, respectively ”, according to the Bank of ‘Uganda.

Kenya’s debt service-to-revenue ratio is currently estimated at 65.8% compared to the recommended threshold of 30%.

“With a projected public debt-to-GDP ratio of 76.6% in 2021 and an increase in debt service to revenue almost twice the IMF threshold, we believe the country could reach levels over-indebtedness, which increases its vulnerability to external shocks, ”according to the pan-African credit rating agency Agusto & Company Ltd.

In Rwanda, the rating agency Fitch revised the outlook for the country’s long-term foreign currency issuers (IDR) default rating to Negative from Stable and confirmed the IDR to “B +” largely due to weakening public finances and increasing public sector debt, a trend exacerbated by the pandemic shock.

“The high budget deficits associated with the pandemic have led to a sharp increase in the level of public debt,” the rating agency said in July this year.

Last month, World Bank Group President David Malpass said more than half of the world’s poorest countries are in debt distress.

He noted that low-income countries will be pushed further into financial stress when the debt relief program expires in December.

“Governments have large budget deficits often pushing public debt to dangerous levels that require particularly careful investment decisions from the public and private sectors,” he said.

In April last year, the World Bank and the IMF urged the G20 to establish the DSSI to help countries focus their resources on tackling the Covid-19 pandemic and protecting lives and livelihoods. millions of the most vulnerable.

The G20 program that went into effect on May 1, 2020 proposed to suspend external debt payments to other governments for 73 countries.

At the time of the announcement, the G20 said it would result in the suspension of more than $ 20 billion in debt repayments and the release of spending on health systems and the fight against the pandemic.

However, 46 countries that requested the program saw only 23% of their external debt payments suspended between May 2020 and June 2021, with 77% continuing to be paid.

The G20 is now replacing the suspension initiative with a Common Framework for Debt Treatment – a debt restructuring plan by the end of December this year.

Last week, the G20 urged all official bilateral creditors to implement the debt relief plan fully and transparently.

“We welcome the recent progress made on the common framework for dealing with debt beyond the DSSI. We pledge to redouble our efforts to implement it in a timely, orderly and coordinated manner. These improvements would give more certainty to debtor countries and facilitate the rapid provision of financial support by the IMF and MDBs, ”the rich countries said in a statement.

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