Debt in Africa

Anne-Marie Trevelyan Excerpts

Tuesday 21st November 2023 Westminster Hall

[The Minister of State, Foreign, Commonwealth and Development Office (Anne-Marie Trevelyan)]

I apologise for my slightly tardy arrival earlier, Mr Vickers; it is a real pleasure to be here. I am grateful to the hon. Member for Slough (Mr Dhesi) for securing this timely debate, and I pay tribute to his work as vice-chair of the all-party parliamentary group on extreme poverty. This is such an important area, and I am also grateful for the thoughtful contributions from all hon. Members. I will try my best to respond to all the points raised, but I will ensure that officials write if I miss any or do not have the full information at my fingertips.

The Minister for Development and Africa, my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), wanted to be here, but his responsibilities meant that he had to make a statement in the main Chamber on the White Paper today, as colleagues have mentioned, so it is a pleasure for me to respond on his behalf.

I want to pull out a couple of points that the Minister made in that statement. When speaking about the important role that development has played in transforming the lives of billions of people, he said:

“The UK can be immensely proud of our distinct contribution to this incredible success story. Two centuries ago, three quarters of the world lived in extreme poverty. When I was born, around half still did. By 2015, when the world met the millennium development goals, the proportion of a much larger global population had fallen to just 12%.”

Development does work, but as we all see, and as thoughtful contributions from hon. Members today have highlighted, after decades of hard-won, persistent progress, we are now living in a world facing a daunting set of new challenges. We are seeing rising poverty, and the UN sustainable development goals are nearly all off track for 2030. We are all cognisant of the challenges, and this timely debate, which focuses on a potential enabler of successful development if the world can make more progress on these debt issues, is an important one.

As colleagues have set out, debt is a major concern for many developing countries, not least those in Africa. I spend most of my time speaking as the Minister for the Indo-Pacific, and some of the big challenges are also clearly seen there. Recent trends paint a sobering picture. Debt levels in Africa are at their highest since the early 2000s, with debt repayments due in 2024 estimated to be six times greater than they were in 2021. Twenty-one of the continent’s 38 low-income countries are now either in debt distress or at high risk of entering debt distress in the next few years. Low-income countries are also increasingly exposed to a wider range of creditors. For example, Chinese debt accounted for 18% of their external debt in 2020, up from only 2% in 2006.

The debt burden of African countries rose over the decade leading up to the pandemic, and it was stoked significantly by the challenges of covid and the impact of Putin’s illegal invasion of Ukraine, disrupting prices for oil, grain and fertiliser. That has led to greater demands for borrowing, rising interest rates and huge pressures on spending and services. According to the UN, between 2019 and 2021, 25 African countries—nearly half the continent—spent more on interest payments than on health.

As colleagues have set out, successive UK Governments, regardless of political colour, have played an important leadership role on international debt over recent decades, from the work done to establish the heavily indebted poor countries initiative in the 1990s to the Gleneagles G8 summit in 2005, for instance. To date, the UK has cancelled £2 billion of debt under these initiatives, and the international community collectively has agreed cancellations worth more than $100 billion. The Government have continued to adapt our approach in recent years in response to the evolving debt pressures on lower-income countries.

When the pandemic hit, we worked rapidly with G20 partners to establish the debt service suspension initiative, which deferred around $13 billion of debt repayments to the G20 and Paris Club. In November 2020, the G20 and Paris Club agreed to a new common framework, as colleagues have noted, to provide debt restructuring and relief to countries that require it. Although two countries—Chad and Zambia, as mentioned by colleagues —have reached restructuring agreements with official bilateral creditors through the new common framework, I think we would all agree that progress has been far too slow.

I will update colleagues on the specifics of UK debt relief; the figures are greater than some quoted by Members. We have provided £1.4 billion through the multilateral debt relief initiative, £150 million through the IMF’s catastrophe containment and relief trust, and roughly £600 million bilaterally as part of the HIPC initiative. So we are leading the way, and we have set out, in a number of areas, our new approach to debt and development in our international development White Paper.

First, we have committed to work with our partners to reshape and reform the debt architecture so that it is fit to address today’s challenges. We will push for the common framework to be more co-ordinated, predictable, transparent—which is important—and timely. We will use the UK’s position on official creditor committees, both within and outside the framework, to help return countries to debt sustainability. We will push more forcefully for the timely conclusion of debt treatments, including debt standstills, where relevant. Importantly, of course, this is a G20 initiative, built on consensus, and delays by some members, such as China, make the pace all the more challenging to achieve.

Secondly, we will ensure that key debt management tools are fit for purpose. That includes, for example, updating the IMF’s debt sustainability frameworks to take account of the impact of climate change—obviously, that is a critical element and many colleagues have highlighted it today—and the investments needed to address it and drive the adaptation and resilience programmes that are needed to support countries.

Thirdly, we will push forward best practice with the private sector, which now accounts for 19% of the foreign debt owed by low-income countries. We will encourage them to introduce contractual innovations, including climate resilient debt clauses, which pause repayments when a shock hits, such as a flood or cyclone. We have pioneered the use of such clauses in our lending agreements, enhancing the ability of developing countries to respond to external shocks. We want to see such clauses rolled out across private and official sector lending. We will encourage the private sector to embrace majority voting provisions in debt contracts to facilitate better outcomes in debt restructurings.

Fourthly, we will support debtor countries. We will continue to champion their voice in fora such as the global sovereign debt roundtable and we will work to find other ways to strengthen their voice. We will also help them to strengthen their debt management capacity with support from our new centre of expertise on public finance and tax.

Finally, we will champion greater debt transparency to build creditor confidence and keep borrowing costs down. The shadow Minister, the hon. Member for West Ham (Ms Brown), highlighted that one of the really difficult and continuing challenges is that the risk profile adds yet another layer.

We in the UK are very proud of our record of transparency as a lender. In 2021, we became the first G7 country to publish details of all new Government lending on a quarterly basis, and we have secured a commitment from other G7 countries to do the same. We will continue to work to push transparency further, reporting on our adherence to the G20 guidelines for sustainable financing, and encouraging the private sector and lending and borrowing countries to disclose their debt agreements properly.

Alongside those five steps to address unsustainable debt levels directly, we are working to help countries to avoid debt distress. The UK Government have a strong track record in helping developing countries to collect more tax and manage their public finances. We will encourage Governments, through the responsible infrastructure investment campaign, to demonstrate that all major infrastructure projects are economically viable and have been competitively tendered.

[Jim Shannon]

If I have heard her correctly, the Minister has outlined a number of ways forward. Time is of the essence. Many of these countries are in extreme debt. I, along with others, am keen to get a timescale for when those debt decisions could be made and when those countries could move away from where they are. Is that possible? Can the Minister please do that?

[Anne-Marie Trevelyan]

The hon. Member challenges me on something that I cannot give him an answer to. I will ensure that the Minister of State, my right hon. Friend the Member for Sutton Coldfield, comes back to him and that that conversation can continue in more detail. I hope that is helpful. I am not the expert in the detail of this so I will ask my right hon. Friend to make sure that the issue is highlighted. To the hon. Member for Strangford’s point, I should say that none of this is immediately resolvable; it is very much around a consensus effort through international partners. However, I will ensure my right hon. Friend gets back to hon. Members accordingly.

As part of our work, we continue to support the debt sustainability challenge by encouraging international financial institutions to scale up their support for the poorest and most vulnerable countries, which are particularly in Africa. We are a leading donor to the multilateral development banks that provide countries with more affordable concessional finance and have announced UK guarantees over the last two years that will unlock more than $2.6 billion in additional finance for African countries.

We have delivered on our commitment to channel a further $5.6 billion of our share of the IMF’s historic issuance of $650 billion of special drawing rights to the IMF’s concessional lending facilities to support vulnerable countries. Perhaps the biggest prize of all is stretching the balance sheets of our MDBs to get more from their existing resources. They could potentially deliver an extra $300 billion to $400 billion over the next decade by implementing the G20 capital adequacy review recommendations. We will continue to push them to do so.

The hon. Member for Slough highlighted the critical challenge that we all face in supporting women and girls, who are so often at the end of the line on funding, education, healthcare and, indeed, tools and investments to help them make the climate adaptation they need in their communities. That is why the international women and girls strategy, which we published earlier in the year, sets out clear commitments with more than £2.5 billion of live official development aid programmes at the moment for women and girls in Africa. The strategy also commits at least 30% of the FCDO’s bilateral aid programmes to focus on gender and equality through to 2030, which is absolutely at the heart of our commitment to the way we want to deliver those development aims.

To conclude, we absolutely recognise the serious challenges that debt poses for countries in Africa. That is why the Minister of State, my right hon. Friend the Member for Sutton Coldfield, set out in the international development White Paper a wide-ranging and comprehensive approach to address them. I thank colleagues for their thoughtful comments and their cross-party support for the work that my right hon. Friend has set out. By building on progress in the common framework, innovating alongside private creditors and working to encourage debt transparency and sustainable lending, the Government will work to ensure that unmanageable debt is swiftly restructured so that countries can develop sustainably.