Low-income Countries: Debt Cancellation

(Limited Text - Ministerial Extracts only)

Thursday 6th February 2025 Westminster Hall

[The Economic Secretary to the Treasury (Emma Reynolds)]

Thank you for calling me, Ms McVey. It is a pleasure to serve under your chairmanship for the first time, and I am sure not the last.

I thank the hon. Member for Southgate and Wood Green (Bambos Charalambous) for drawing attention to these issues and for bringing this debate on debt cancellation to Westminster Hall today. I also thank the other Members, whose speeches have made for a rich discussion on this issue. I will mention them briefly and then hope to come to everyone’s questions, should time allow. I thank the hon. Member for Strangford (Jim Shannon) for his kind words about my appointment—I am still early in my time in this role. I also thank him for underlining the importance of the role of charities in the development work that they do in low-income and vulnerable countries.

My hon. Friend the Member for Loughborough (Dr Sandher) spoke with great passion about his experience working in Somaliland. He brings great insights to the House after working in that capacity previously. I thank the hon. Members for Melksham and Devizes (Brian Mathew) and for Esher and Walton (Monica Harding) for stressing that the UK needs to restore our leadership on international development. I will come to some of their questions later in my contribution.

I also want to thank my hon. Friend the Member for Clapham and Brixton Hill (Bell Ribeiro-Addy) for raising crucial points about the situation that many low-income countries vulnerable to the impacts of climate change find themselves in. I will say a little more about that, too.

The Government are highly concerned by the debt challenges faced by many low and middle-income countries, with 3.3 billion people living in countries that spend more on servicing their debt than on health or education—a point made by many hon. Members. Among low-income countries, 10 are currently in debt distress and 25 are at high risk, and there is an urgent need to address the vulnerabilities. As a Government, we are fully committed to tackling unsustainable debt burdens in a way that supports development needs and helps countries address those vulnerabilities.

We are acting in three key ways. I will attempt to answer questions, particularly from my hon. Friend the Member for Southgate and Wood Green who secured the debate, when discussing the three key ways. The first is on addressing liquidity challenges; the second is on ensuring effective debt restructurings; and the third is on promoting debt resilience.

First, on addressing liquidity challenges, we are working with international partners to address immediate liquidity pressures facing many countries, which are crowding out vital spending on climate, health and education. We support the IMF and World Bank’s three-pillar approach, which is designed to support countries with high debt repayments. The first pillar is focused on action from vulnerable countries to improve revenue mobilisation and implement sound economic policies. The second focuses on ensuring that countries receive new flows of finance at concessional rates from international financial institutions and other development partners. The final pillar looks at providing case-by-case action to reduce the cost of existing debt burdens where needed.

Secondly, we are working to address debt vulnerabilities through improving the effectiveness of debt restructurings for countries in debt distress. The G20 common framework remains the best mechanism for co-ordinating debt restructurings to address unsustainable debt burdens, but further progress is needed.

The UK is working closely with the G20 and other international partners to ensure the framework delivers more timely, orderly and predictable debt restructurings. I know that is high on the priority list of the South African G20 presidency this year. The UK will be pressing for rapid implementation of the lessons learned from the common framework, which were agreed under the Brazilian presidency of the G20 last year.

The private sector, which has been mentioned by many hon. Members, must also play its part in debt restructuring efforts. We are actively engaging with private sector partners—for example, through the global sovereign debt roundtable—to ensure continued private sector support for addressing the debt challenges faced by countries, leveraging the City of London’s leading role in sovereign debt markets.

Several Members, including my hon. Friend the Member for Southgate and Wood Green, mentioned the issue of private creditors and whether we needed legislation to force them to participate. The Government are not currently seeing evidence that private creditors are refusing to participate in debt restructurings. Recently, private bondholders have agreed to debt treatments for common framework countries, including Zambia and Ghana. We are working closely with the private sector through bilateral meetings, engagement with representative institutions and Paris club discussions.

Hon. Members also raised the issue of comparable treatment by private creditors. I reiterate that both Zambia and Ghana have reached agreements on debt restructurings with their private bondholders. Official creditors have deemed these comparable with their own restructurings.

My hon. Friend the Member for Southgate and Wood Green raised the need for UK leadership on debt relief, and we heard that from others, too. I highlight that the UK has a strong track record of pushing for effective and holistic solutions to debt challenges, including supporting the IMF’s three-pillar approach for countries facing liquidity challenges and pushing for more effective co-operation and co-ordination under the G20’s common framework. The UK also co-ordinates debt treatment through our membership of the Paris club and our commitments to the G20 common framework in partnership with other creditors.

This is a key point: unilaterally writing off debt owed to the UK would not be in the interests of the UK taxpayer—the shadow Minister, the hon. Member for Romford (Andrew Rosindell), mentioned the UK taxpayer, of course—which would be subsidising ongoing payments to other creditors if done unilaterally. The Government are therefore working closely with borrowers, official and private creditors, and the IMF and World Bank to strengthen the wider debt architecture and provide timely and co-ordinated restructurings for countries, where needed to support holistic debt sustainability for low-income countries.

The third way that the Government are pursuing this issue is through tackling unsustainable debt by promoting greater resilience in debt markets. In response to the shadow Minister, I mention that the UK is committed to provide sovereign financing on sustainable terms and to act in an open and transparent manner to support global debt sustainability.

We are playing a leadership role internationally in several key ways. The hon. Members for Melksham and Devizes and for Esher and Walton asked what the UK was doing to provide leadership.

[Jim Shannon]

My contribution, not that it was better than anybody else’s, put forward the idea that the countries we are helping with debt might be able to supply us with some goods as a way of paying us back, rather than making a financial repayment. Is that something that the Minister and the Government would look at?

--- Later in debate ---

[Emma Reynolds]

I am not sure that is something we are actively considering, but I will check and write to the hon. Gentleman.

In December 2024, we were the first country to publish our self-assessment against the G20’s operational guidelines for sustainable financing. In line with those guidelines, we publish annual reports on the total stock of debt owed to the UK, including reports on our new sovereign lending transactions.

Finally, we are committed to provide sovereign financing on sustainable terms, adhering to the OECD’s sustainable lending principles. My hon. Friend the Member for Southgate and Wood Green also suggested creating a private sector transparency register. The UK supports all initiatives to improve debt transparency and is open to considering proposals for such a register. We also acknowledge the ongoing work by Georgetown University in this area.

The UK has led the way in promoting debt resilience through the introduction of contractual innovations, an approach that the IMF has found to be working well. Under our G7 presidency in 2021, the UK developed two contractual innovations together with private sector stakeholders. The first relates to external shocks, which my hon. Friend the Member for Southgate and Wood Green mentioned in his speech. Climate resilient debt clauses help to strengthen the resilience of vulnerable countries by suspending debt repayments in the wake of external shocks, which frees up fiscal space for the country. The UK has led the way by including CRDCs in our own lending and calling for all lenders to adopt CRDCs by the end of this year.

Second, the UK helped to develop majority voting provisions, which are for use by the private sector specifically for syndicated lending. MVPs allow a majority of creditors to bind the minority to the terms of a restructuring and thereby mitigate the risk of a minority of creditors holding out in a restructuring scenario, which hon. Members mentioned in their contributions, and enable more efficient debt restructuring processes.

On Monday, at her speech at the London Stock Exchange, the Minister for Development, my right hon. Friend the Member for Oxford East (Anneliese Dodds), announced that the FCDO will provide technical assistance for borrower countries that intend to include majority voting provisions in their contractual agreements with private sector lenders.

I will now turn to a couple of questions that were asked during the debate. I apologise if I do not get to answer all the questions in the time available; I promise to write to hon. Members if I do not get to all of them. My hon. Friend the Member for Southgate and Wood Green asked about reforming the governance of international organisations. We agree that more needs to be done. First, we must change the international financial system in order to deliver a fairer deal for developing countries, including by using our board seats at the IMF and the World Bank, for a bolder approach on unsustainable debt. Secondly, we need to ensure that our system is more representative of those most in need, so we will make the case for not only fairer outcomes, but fairer representation in how we represent them.

The Liberal Democrat spokesperson, the hon. Member for Esher and Walton, asked whether the Government would return to spending 0.7% of GDP on development, which the last Labour Government were very proud to commit to and reach. This Government remain committed to restoring ODA spending to 0.7% as soon as fiscal circumstances allow. Although the Office for Budget Responsibility forecasts show that the tests have not yet been met, we continue to monitor these forecasts closely and remain one of the top ODA providers in the G7.

There were a number of questions about climate, including from my hon. Friend the Member for Clapham and Brixton Hill, and I want to make a few comments about that. To strengthen the resilience of vulnerable countries and free up fiscal space when responding to shocks caused by climate change, the UK has led the way in encouraging the broader adoption of climate resilient debt clauses, which suspend debt repayments, on a cost-neutral basis, in the wake of exogenous shocks. We welcome creditors who have committed to providing CRDCs, and encourage others to follow suit.

My hon. Friend also said that the common framework should be expanded to middle-income countries and offer an automatic suspension for countries that apply for restructuring. The UK is fully committed to making the common framework a success. We support expansion of the framework to middle-income countries and providing automatic debt standstills for countries that apply for restructuring under the framework. We continue to push for those reforms in the G20. I hope that answers her question on that point.

I thank the shadow Minister, the hon. Member for Romford, for his contribution—I think this is the first time that we have debated this way. He asked about reassurance on sound economic policy and preventing corruption. We agree that any lending and policy must be agreed on a sustainable basis. First, the scale of debt treatments is set under the IMF’s debt sustainability analysis. Secondly, the UK is committed to acting in an open and transparent way, as we have shown by publishing our own self-assessment against G20 guidelines. The hon. Gentleman asked a number of other questions. He was talking about open-ended commitments and sustainability. I think we all agree we want to reduce the reliance of low-income countries on foreign debt. That is what this debate is about, and we want a sustainable solution. He asked about the role of China specifically. I am happy to write to him, in a follow-up to his questions, on that. All I will say now is that it is really important that we work with all international partners on this issue, because only by working multilaterally will we have success in the sense of providing sustainable solutions. We do not think we can act alone.

I thank all hon. Members for their thoughtful contributions during today’s important debate. Together with the international community, we must work actively and urgently in order to address the significant debt challenges faced by vulnerable countries, and the Government are committed to doing just that.