Low-income Countries: Debt Cancellation

Bambos Charalambous Excerpts

Thursday 6th February 2025 Westminster Hall

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

I beg to move,

That this House has considered debt cancellation for low-income countries.

It is a pleasure to serve under your chairmanship, Ms McVey. In the late 1990s and early 2000s, the momentous Jubilee 2000 debt campaign brought together people from all walks of life, trade unions, churches, community groups, and even the odd rock star and celebrity, with the sole purpose of demanding debt relief for the world’s poorest countries, which are suffering extreme poverty caused by debt payments. The campaign was a resounding success and resulted in more than $130 billion of debt cancellation for 36 low-income countries, equating to an average 75% debt reduction for each country, allowing them to invest in health, education systems and other public services.

Although the Jubilee 2000 campaign was widely celebrated, and world leaders felt that some good had been achieved, it later became clear that the symptom had been dealt with but not the cause. The current state of affairs is alarming. The World Bank’s latest international debt report stated that developing countries spent a record $1.4 trillion to service foreign debts, and that interest payments alone have soared by nearly a third to $406 billion, leaving many developing countries having to cut vital services, such as health, education and environmental programmes. The pressures are felt most greatly by the poorest and most vulnerable countries, which paid a record $96.2 billion to service their debt in 2023. Of that, $34.6 billion was in interest alone—a staggering fourfold increase on the figure a decade ago. Indermit Gill, the World Bank Group’s chief economist, said:

“In highly indebted poor countries, multilateral development banks are now acting as a lender of last resort, a role they were not designed to serve. That reflects a dysfunctional financing system”.

According to a report on the global debt crisis published recently by the Catholic Agency for Overseas Development, 3.3 billion people now live in countries that spend more on debt servicing than on health and education, and the most food-insecure countries have seen the highest increases. Debt servicing is expected to consume 55% of low-income countries’ budgets in sub-Saharan Africa by 2025.

A definition of insanity is doing the same thing over and over again, expecting a different result. When countries such as Ghana and Sri Lanka end up having to receive a 17th International Monetary Fund bail-out package, it is clear that things have to change.

A complicating factor in dealing with debt relief is the role of private creditors, which have exploded on to the international debt scene since the success of the Jubilee 2000 campaign. Today, 61% of global sovereign debt is owed to private creditors such as hedge funds, asset managers and investment banks. Private lenders’ terms and conditions are often far more onerous than those of multilateral lenders, leaving low-income countries at the mercy of exorbitant interest rates and quick repayment schemes.

[Chi Onwurah (Newcastle upon Tyne Central and West) (Lab)]

I thank my hon. Friend for the work he has done in this incredibly important area over a long time. He talks about the impact of rising interest rates on low-income countries, to which could be added the impact of covid and dealing with climate change, and the private sector operators. Does he agree that when countries such as the UK choose to forgive sovereign debt, speculators and private sector operators should not profit from that but should follow this country’s lead?

[Bambos Charalambous]

My hon. Friend makes an excellent point. I will come to that later in my speech, but she is absolutely right. We need to treat private creditors in the same way we treat bilateral and multilateral creditors.

Private credit schemes are proving to be very lucrative deals for private creditors. In 2023 alone, private creditors received $68 billion more in interest and repayments from low-income countries than they had actually lent to them. That in itself is bad enough; what is worse is that when a defaulting country seeks debt relief there is nothing to compel private creditors to agree to be bound by any agreement reached by multilateral and bilateral creditors. In fact, there is no obligation to compel them to act in good faith or at all.

One stark example is the case of Sri Lanka. In 2022, Sri Lanka defaulted on its sovereign debt, which led to the most serious economic crisis in the country’s history. Sri Lanka sought debt relief from its creditors, with 47% of it owned by private creditors. Despite reaching an agreement with its bilateral creditors, the private creditors refused to accept any debt relief and sued Sri Lanka in the US courts to prioritise their debts. As a result, the private creditors will receive 30% more in debt repayments than the bilateral creditors, while Sri Lanka had to seek a bailout from the IMF. Sri Lanka will have to slash its public sector spending and spend 30% of its Government revenue on debt repayments, which the IMF regards as unsustainable. It is morally repugnant that private creditors behave in such a way, deliberately hampering the ability of a low-income country to get back on its feet at a time of crisis.

Sri Lanka is not alone in its experience at the hands of private lenders. Following the covid pandemic the G20, realising that international debt needed to be urgently dealt with, set up its common framework for debt treatments as the main global framework for dealing with resolving debt crises. The expectation was that all creditors would co-operate in collectively agreeing debt relief for countries that sought relief under the framework. Despite progress being made with bilateral and multilateral creditors, Chad and Zambia, which both sought debt relief under the framework, found that their private creditors would either drag negotiations out or offer debt relief that was significantly less than what was agreed with the bilateral or multilateral creditors.

Chad failed to get any debt relief from its main private creditor, the UK-based company Glencore, and Glencore will be repaid 50% more than Government creditors. Zambia had been negotiating a debt relief agreement for more than four years when it finally reached agreement with bondholders. One of the private companies was paid 13% more than Governments, including the UK, while other private lenders, including UK-based Standard Chartered and Investec, are still to agree debt relief with Zambia. Ethiopia and Ghana have experienced similar behaviour from private creditors.

The behaviour of private creditors is contrary to the spirit of the framework and has resulted in a loss of confidence in the framework’s efficacy among other debtor countries. To date, only four countries have sought relief under the framework. The truth is that private creditors have no incentive to agree to debt relief, because if they hold out, they get the interest payments and principal repayments as agreed. If there is a default, they can sue in the UK or US courts for enforcement action against the defaulting country, which will also be lucrative for them.

For private creditors, it is a win-win situation; for low-income countries, it is lose-lose. Expecting private creditors to voluntarily enter into debt relief arrangements is like telling an alcoholic not to have a drink. Urgent legislation is required to compel private creditors to enter into and be bound by debt relief agreements.

I have talked a lot so far about sums of money, but we must remember the human cost of investment not going to low-income countries as a result of debt re-servicing—for example, the rise in infant mortality due to cuts in health spending. UNICEF has stated that if a country has defaulted on debt repayments that remain unresolved for more than three years, the infant mortality level rises by 11.4% over that same period. Chronic under-investment in education leads to a less skilled, less healthy and less productive workforce, resulting in a lost generation, making it harder for them to escape poverty.

So what needs to be done to resolve the debt crisis? In its excellent 2023 report entitled “Debt relief in low-income countries”, the International Development Committee came up with some recommendations. The first such measure would be the reform of the governance of financial institutions that control international debt, such as the IMF. The conditions imposed by the IMF on debt bail-outs often have dire effects and make things worse for the debtor country by placing more emphasis on the short-term repayment of debt, rather than on the long-term infrastructure development of a country that could provide it with lasting security and protection from indebtedness.

Secondly, there is a need to create a level playing field by passing legislation to compel private creditors to actively participate in the debt relief process by preventing them from suing for more money than they would get if they accepted debt relief on the same terms as other lenders. In 2010, the Labour Government passed the Debt Relief (Developing Countries) Act, which did exactly that for debt that was owed prior to 2004. My ten-minute rule Bill is an updated version of the 2010 Act. As more than 90% of bonds owed by countries eligible for debt relief are issued in the UK, it would have a significant impact on low-income countries and could be transformative in allowing money spent on servicing debt to go into health and education systems and to be spent on the environment. It would cost the Treasury nothing and, at a time when aid spending is seeing little if any increase, it would be a sure way of getting money to the most vulnerable countries. There is no justification for treating private creditors differently from other lenders.

Thirdly, there needs to be a public global debt register to record the details of all global sovereign debt. The need for transparency is urgent, and it would help populations in debtor countries to hold their Governments to account over entering agreements with predatory private creditors.

Fourthly, there should be a framework for the automatic cancellation of debt servicing when highly indebted countries are hit by catastrophic events such as climate-related disasters like Storm Beryl. It cannot be right that while a climate-vulnerable country is struggling to get back on its feet, it is forced to make debt-servicing payments. Instead of making these countries apply to international institutions for debt cancellation, debt cancellation should be automatic. Given that in 2024 the total external debt serviced by all African countries was $104 billion, of which $47 billion was owed to private creditors, and the entire UK aid budget to Africa was £993 million, something needs to change; otherwise we are just servicing the debt owed to private creditors.

[Chi Onwurah]

I thank my hon. Friend for his generosity in giving way, as well as the excellent points he is making. As the chair of the all-party parliamentary group for Africa, I have noted with concern the language around the increased migration that we have seen over the last few years, and we are all concerned to see the way in which criminal gangs exploit vulnerable migrants. Does my hon. Friend agree with me that by allowing the extraction of so much value from countries in Africa, we are not aiding and supporting economic opportunities for Africans in their own countries and are therefore contributing towards increased migration?

[Bambos Charalambous]

Again, my hon. Friend makes an excellent point. The lack of investment as a result of debt servicing leads to people seeking opportunities that are not available in their own country, so I totally agree with my hon. Friend on that point.

Before I conclude, I thank CAFOD, Christian Aid, Debt Justice, UNICEF and Save the Children for their excellent briefings ahead of this debate, and for their support in relation to debt cancellation. I conclude with these questions for the Minister. Will the Government support my ten-minute rule Bill to prevent private creditors from being able to sue for enforcement in the UK courts for more than has been agreed in relation to debt relief with bilateral and multilateral lenders? Does the Minister agree that there should be comparable treatment for all creditors? Also, do the Government support a public global debt register for transparency? Does the Minister support the reform of the governance of the institutions, such as the IMF, that set the terms and conditions of bail-outs?

The UK has a unique position in being able to use its global reputation to bring about change on the international stage in relation to debt cancellation, as it did 25 years ago. We led the way then, and it is time to do so again. We cannot afford not to. The global south is looking to us for action, and it is time for us to act.

[Esther McVey (in the Chair)]

I remind Members that they should bob if they wish to be called.

--- Later in debate ---

[Bambos Charalambous]

I will be brief. I very much welcome the Minister’s responses, certainly in relation to financial institutions and reforming the IMF, representation, how we look at debt, and transparency. In relation to external shocks, I think we should look at automatic cancellation of debt when a country is facing a climate event, for example. I very much hope that that can be looked into, long term.

On comparable treatment, I know that the Minister has taken that on board and will be looking into it further. I disagree with her on legislation in relation to private creditors. Private creditors have not shown themselves to be responsible in this matter. I have given examples of private creditors who have not engaged in the G20 framework in the way they were expected to. I hope that, if the Minister does have regular meetings with them, she is able to convey this message to them. Until we see changes, I certainly will be pursuing legislation through my private Member’s Bill, the Debt Relief (Developing Countries) Bill.

We have had a good discussion today, and I thank all Members for contributing as they have, to show the unanimity on what we would like to see done. I think we all support debt cancellation and would like to see more done to help low-income countries—the most vulnerable ones—to get back on a level footing so that they can develop their economies as we would like to see them develop.

Question put and agreed to.

Resolved,

That this House has considered debt cancellation for low-income countries.