Debt Relief (Developing Countries)

Bambos Charalambous Excerpts

1st reading
Wednesday 13th November 2024 Commons Chamber

[Bambos Charalambous (Southgate and Wood Green) (Lab)]

I beg to move,

That leave be given to bring in a Bill to make provision for or in connection with the relief of debts of certain developing countries.

Debt remains a huge cause of concern for low-income countries in the wake of the covid pandemic and following rising inflation on food and fuel. Thirty-four African countries spend more on external debt payments than on their entire healthcare and/or education budgets. According to a report from the Send My Friend To School coalition, across low-income countries, debt servicing on net interest payments accounts for 60% of education expenditure. The latest figures for Africa show that the total external debt serviced by all African countries in 2024 was $104 billion. Over 45% of that amount, $47 billion, is owed to private creditors. To put that into perspective, the entire UK aid budget to Africa in 2024 was £993 million, or less than one hundredth of what African countries owe in external debt.

To use a specific example, this year the Kenyan Government will spend $5.149 billion on external debts, of which $2.981 billion will go towards external debt payments to commercial creditors. The UK provides Kenya with £45 million in aid, so in effect, UK aid is going towards helping service that debt. At a time when we have seen overseas development aid cut from 0.7% to 0.5% of GNI, we need to have an overview of the contribution that aid makes, rather than seeing aid in isolation. If we are truly serious about ensuring that UK aid goes further, debt relief from private creditors has to be addressed.

The G20 has identified debt as a problem for developing countries, and has taken some steps to address it. In November 2020, it created the common framework for debt treatments beyond the debt service suspension initiative. The intention was to allow low-income countries with unsustainable debt to use that framework to obtain debt relief, including from private creditors. Although well intentioned, the common framework has been ineffective, because it has no teeth. Private creditors have been unwilling to participate, and there is no process to ensure their participation. Consequently, while Governments were negotiating debt relief with low-income countries, private creditors were just going through the motions. One example is the in-principle agreement that Zambia made with private creditors, under which they would have been paid a third more than Government creditors, including the UK and China. Needless to say, the Government creditors vetoed that deal on the basis that there was no equal treatment of creditors as required by the common framework, leaving Zambia in limbo.

The four countries that requested debt treatment under the common framework experienced lengthy delays and a long, drawn-out process, with very little to show for all the time and effort spent on trying to obtain debt relief. Critics suggest that the failings of the common framework have been due to a lack of enforcement, a lack of a mechanism to co-ordinate creditors, a lack of transparent debt reporting, and an inability to prevent litigation and hold-out behaviour from creditors. The fact that only Chad, Zambia, Ghana and Ethiopia have used the common framework, and that none has seen any debt cancelled from private creditors, has shown how ineffective the common framework is and has put other countries off applying.

Despite the G20 Governments and the International Monetary Fund urging private creditors to co-operate, the G20 has not offered low-income countries the tools they need to bring the private creditors to the table to negotiate debt treatment. There is an urgent need for a mechanism that will ensure that Governments and private creditors share the burden equally when restructuring debt with low-income countries, and that is something the UK can help with. The UK can play a big role in overcoming the delays and bureaucracy caused by the common framework and can deliver equal treatment of creditors. In doing so, it will deliver debt justice for low-income countries and do what the G20 intended.

How could this be done? Ninety per cent of the debt of the low-income countries eligible to apply to the common framework is governed by English law. This Bill will compel private creditors to actively participate in the debt relief process by preventing them from suing for more than they would get if they accepted debt relief on the same terms as other lenders. Knowing that they could not get more than Government creditors would also have the effect of encouraging private creditors to reach a quicker settlement, rather than drag their heels as they have been doing under the common framework—some might say that in doing so, they are acting in bad faith. If successful, this process could lead to more applications from low-income countries than the paltry four that the common framework has received to date. That could unlock billions for low-income countries to spend on their health and education systems, while not costing the Treasury a penny.

For those who are sceptical about whether this can be done, I point to a precedent. In 2010, the UK passed similar legislation, the Debt Relief (Developing Countries) Act, which started off as a private Member’s Bill introduced by my good friend, my hon. Friend the Member for Gorton and Denton (Andrew Gwynne). That Act compelled private creditors to participate in debt relief under the now-outdated heavily indebted poor countries initiative. A subsequent Government review in 2011, led by the coalition Government, found that legislation to have been a success and to have had no adverse impact on the UK economy. My Bill will update the 2010 Act, strengthen certain measures, and make it applicable to the current G20 common framework.

This Bill will reduce the burden of debt for the poorest countries and help overcome the ineffectiveness of the G20 common framework. It will also prevent future debt crises by deterring risky lending. There is much more that could be done to strengthen the common framework, such as introducing the legal automatic suspension of payments when a country applies to the common framework, as is the norm when big corporations deal with corporate debt restructurings. However, that is outside the scope of my Bill; perhaps it is something that Ministers can take up directly with the G20.

Next year will be the 25th anniversary of the Jubilee 2000 campaign, which sought debt forgiveness for low-income countries and saw over $100 billion of debt cancelled for the 35 poorest countries in the world. We need to repeat that success, so that the savings from debt cancellation can go towards funding health and education programmes in low-income countries. With 3.3 billion people living in countries that spend more on debt servicing than on health or education, the time to act is now.

Countries seeking debt relief are also experiencing extreme weather events due to climate change. Last year, Zambia had its most severe flooding for more than 50 years, with over 25,000 households affected. Right now, it is experiencing its worst drought in 40 years, with 50% of this year’s crops lost and with 2024 on track to be the hottest year on record. Zambia is suffering despite only contributing 0.01% of global greenhouse emissions since the industrial revolution. Although Zambia has sought debt relief from its largest private creditor, that creditor has refused to cancel the amount the International Monetary Fund has said is necessary to make the debt sustainable. That is typical of the behaviour of private creditors towards low-income countries. It is everyone’s responsibility to ensure that countries such as Zambia get the debt justice they deserve, and it is imperative that we take action now.

Before I conclude, I want to thank the organisations that have provided me with invaluable advice and support in preparing this Bill, which have been championing the cause of debt relief for many years. Those organisations are Christian Aid, the Catholic Agency for Overseas Development, and Debt Justice. I also wish to thank the Send My Friend To School coalition and the House of Commons Library for some of the statistics used in my speech. I hope that this Bill will go some way to securing debt relief for low-income countries, allowing the money saved to be reinvested in health and education systems for those who need that investment most and helping to tackle the effects of climate change, such as in the case of Zambia. Morally, it is the right thing to do; it is the just thing to do; and it is the compassionate thing to do. I hope this Bill will receive the support it deserves and needs.

Question put and agreed to.

Ordered,

That Bambos Charalambous, Sarah Champion, Alice Macdonald, Sam Rushworth, David Taylor, Laura Kyrke-Smith, Gordon McKee, Chris Law, Ellie Chowns, Liz Saville Roberts, Tonia Antoniazzi and Jo Platt present the Bill.

Bambos Charalambous accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 14 March 2025, and to be printed (Bill 128).