This is a guest post by Sunit Bagree, Senior Campaigns Officer, Action for Southern Africa (ACTSA), based on a talk given at the Jubilee Debt Campaign event ‘Breaking the chains: 1998 to the present day’ in Birmingham on 29 September 2018.
Since 2008, public debt in sub-Saharan Africa has been rising at an increasingly rapid pace. By 2016, just eight years later, sub-Saharan Africa’s gross public debt to GDP ratio had doubled.
In addition, nowadays a much larger share of African debt is held by private banks and bondholders compared to the 1990s, when most African debt was held by Global North countries (such as the UK) and multilateral institutions like the World Bank and International Monetary Fund (IMF). Yet the cost of finance from commercial creditors is often painful for African countries – this is illustrated by the fact that the cost of debt service (i.e. repaying debt) has bounced back more quickly than debt stocks have risen.
While the focus here is on debt, a number of other issues are important to bear in mind, including: falling commodity prices (many African economies are dependent on commodity exports); weak African currencies (which make paying foreign debt more expensive); rising interest rates; negative or anemic per capita growth and economic inequality in African countries; poor tax revenue collection by African governments; and the impacts of war and climate change-related disasters.
I’m going to discuss the disturbing debt situation in three Southern African countries: Angola; Zimbabwe; and Zambia (The crisis in Mozambique has been covered elsewhere). Debt is political. The emerging crisis that we are seeing is in part the result of unjust and ineffective governance in these and other countries of the Global South. But it is also a consequence of myriad failings on the part of countries of the Global North, including the UK, and intergovernmental institutions, most notably the IMF.
João Lourenço became President of oil-rich Angola in September 2017 after José Eduardo dos Santos ruled the country for 38 years in a manner that was highly corrupt and abusive of human rights.
Research by Jubilee Debt Campaign last year showed that Angola is the country in the Global South with the widest proportional discrepancy between spending on external debt payments and spending on public healthcare. While 44% of government revenue is spent on repaying external debt, only 6% is spent on public health. Public health in Angola is in crisis. As recently as 2015, the country had the highest rate of child mortality in the world.
At the end of 2017, Angola’s debt to China amounted to $21.5bn – this is about half of Angola’s total external debt – and this year Angola’s debt to China is likely to grow significantly. Oil is used as collateral for Chinese credit and Chinese loans are often actually repaid in oil. Moreover, a significant amount of Angola’s debt (Jubilee Debt Campaign estimates around 35%) is owed to Western private lenders, a lot of it under UK law.
In early March, the IMF’s Division Chief for Africa said that he didn’t believe a bailout for Angola would be necessary. However, at the end of August, Angola turned to the IMF for a $4.5 billion loan.
Zimbabwe is in long-term debt default; the country originally defaulted on its debt in 2000. During Robert Mugabe’s authoritarian and brutal rule, the UK and other Western governments lent money to Zimbabwe, including for police and military equipment, despite (rightly) being critical of Mugabe’s leadership.
Since the coup in November 2017, the UK has strongly backed the country’s new leader, Emmerson Mnangagwa, in spite of his terrible human rights record (under Mugabe he held various senior Cabinet positions and he was Vice-President until just before the coup). Mnangagwa wants Zimbabwe to participate in a debt restructuring process led by the IMF; it’s unclear if the recent post-election violence will affect his ambitions. A debt restructuring deal would mean that Zimbabwe repays about $1.8 billion of arrears to lenders to enable the country to borrow again. Zimbabwe’s total foreign debt is estimated to be $11.5 billion.
In recent years, talks on restructuring Zimbabwe’s debt have lacked transparency. Also, some of the debt is ‘odious’, i.e. illegitimate as it was knowingly lent to a despotic regime. There needs to be a comprehensive audit to identify where the country’s debts come from and who benefitted from loans.
Before discussing Zambia’s precarious current position, I’d like to use this country as an example of the benefits of past debt write-offs. In 2005, Zambia used debt relief to begin providing free anti-retroviral drugs to 100,000 people living with AIDS; significant steps to prevent mother to child transmission of HIV were also taken. Furthermore, user fees for primary education were dropped across the country.
So what’s the current situation like? In terms of politics, while Zambia has been relatively stable compared with many other countries in sub-Saharan Africa, it certainly isn’t without political problems. The 2016 general election was controversial and, less than a year ago, the President, Edgar Lungu, warned Constitutional Court judges not to stop him running for another term in 2021, even though this may violate the country’s constitution.
Today, Zambia faces a looming debt crisis. Since 2010, the country’s foreign debt repayments have increased sharply. One set of loans to Zambia came from the UK government (via the World Bank) for adaptation to climate change.
The Zambian government says that its foreign debt stands at $9.4 billion but analysts believe that the figure is considerably higher. It is estimated that China holds around a quarter to a third of Zambia’s foreign debt and Western private creditors hold approximately the same proportion (under UK law) – but no one knows for sure, as there is a severe lack of transparency.
Zambia wants a loan from the IMF but the IMF does not wish to lend to Zambia at this time as it believes that the country’s borrowing plans remain unsustainable. On top of this, the Trump Administration’s cuts to US aid will particularly affect Zambia, as the country received a high proportion (almost 18%) of US aid to Southern Africa between 2005 and 2015.
What must be done?
We need new measures to ensure that all loans to governments given by UK-based financial institutions, or loans given under UK law, are publicly disclosed and in compliance with all applicable laws.
Beyond this, we need Global North countries and multilateral institutions, particularly the IMF, to:
- Formally recognise and prioritise tackling the new debt crisis in the Global South in a participatory, transparent and accountable manner – including by stopping all reckless lending and clamping down on vulture funds.
- Fully respect the UN principles for sovereign debt restructuring in policy and practice.
- Provide debt cancellation – without undemocratic and very frequently damaging neoliberal economic policy conditions (these include austerity, privatisation, liberalisation and deregulation).
Finally, and more broadly still, all financial policies and practices, as well as all policies and practices in relation to international development and foreign affairs, must be in line with the Sustainable Development Goals and international human rights law (this refers to civil, political, economic, social and cultural human rights).