A new book edited by a pair of University of Pretoria (UP) academics seeks to understand the debt challenges facing the Southern African Development Community (SADC) and offer policy-oriented recommendations.
The multi-disciplinary book, COVID-19 and Sovereign Debt: The Case of SADC, is edited by Professor Daniel Bradlow, SARCHI Professor of International Development Law and African Economic Relations at UP and Professor Emeritus of Law at American University, Washington College of Law in Washington, DC, alongside Dr Magalie Masamba, Post-doctoral Fellow with UP’s Centre for Human Rights and Global China Post-doctoral Research Fellow at the Boston University Global Development Policy Center.
“This topic is becoming increasingly urgent in the wake of the COVID-19 pandemic’s profound and adverse impact on Africa’s sovereign debt situation,” Prof Bradlow said. Currently, 22 low-income African countries are either in debt distress or at high risk of debt distress. “The war between Russia and Ukraine is causing prices for a number of vital products including gasoline and food to rise and is disrupting supply chains, which will exacerbate this problem.”
The book focuses on the issue of African sovereign debt management and renegotiation/ restructuring, with a particular concentration on SADC countries. It contains a series of essays that were initially presented in several virtual workshops held in 2020 at the height of the pandemic.
“We hope this body of work will stimulate debate among academics, activists, policymakers, and practitioners on how SADC countries should manage their debt,” Dr Masamba said. “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.”
According to the contributors, 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. While over the same period the proportion of the total owed to official creditors has remained roughly stable, the composition of this group has changed. The group of official creditors has expanded beyond the traditional official creditors to include 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, the amount of Eurobonds issued by sub-Saharan African countries had almost tripled over this period from $57 billion to $136 billion.
The book offers five key recommendations:
1. Debt transparency: Countries in the region should adopt comprehensive debt data disclosure requirements and state borrowing procedures that are transparent, participatory, and that facilitate 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 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 debt 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.
“It is our hope that by shining a spotlight on this rapidly growing problem, we can help steer SADC and other countries toward improved debt management, improved public finances, and better service-provision and quality of life for millions of African citizens across the affected countries,” Prof Bradlow said.