Low-income Countries: Debt Cancellation

Jeevun Sandher Excerpts

Thursday 6th February 2025 Westminster Hall

[Dr Jeevun Sandher (Loughborough) (Lab)]

I thank my hon. Friend the Member for Southgate and Wood Green (Bambos Charalambous) for securing this debate.

African nations face a debt crisis caused by global factors—a debt crisis that is leading to more poverty, more hunger and war. They cannot renegotiate the debt, because it is held by private lenders, each of whom, through no fault of their own, has only one incentive: to hold out for a better deal in their fiduciary duty to their shareholders. As the debt is issued in London, we can help private lenders break out of that trap by mandating that all of them must accept the outcome of debt negotiations. That will help us to end the African debt crisis, build functioning states and reduce extreme poverty, all without spending a penny.

Before being elected to this place, I worked as an economist in the Finance Ministry of Somaliland, one of the poorest places on Earth. I helped to write its budgets, its economic policy and its national development plan, and I saw that ending extreme poverty requires an effective Government, as we have seen in India and South Korea. A Government who raise their own revenue are far more effective than a Government who receive it in international aid, because with taxation comes representation.

African nations are stuck, unable to reduce poverty because they are spending one fifth of their revenue—more than they spend on healthcare—paying down debts. They are trapped in that debt because of global factors: post-covid supply shocks, Putin’s invasion of Ukraine and rising global interest rates. Debt repayments are up by 30% since 2019, and have more than tripled since 2010.

African nations, like any debtor, need to renegotiate their debt. If that debt was owed solely to other nations, that would be relatively simple, but it is not; it is owed to an unknown multitude of private creditors. Each of those creditors has a fiduciary duty to gain the highest return for its shareholders. Each individual private lender is trapped. They have to hold out, let others take the haircut and try to get the full amount for themselves. They are not bad people and they are not evil, but they are trapped within a system that no individual has the power to break out of.

Today, we can give them that power, because 90% of African debt governed by the common framework is issued under England’s legal jurisdiction. We can help to end the debt crisis without spending a penny by changing British law so that private lenders have to abide by the outcome of debt negotiations. Where before, private lenders were trapped, damned if they did forgive and damned if they did not, they would be free to implement sensible debt renegotiations.

I know that some will disagree, and I will take their arguments head on. Some will say that the status quo—things like collective action clauses—is sufficient. That view is wrong. Ghana and Zambia have been waiting 12 months for private lenders to come to the table. They are still waiting. Chadian private debt is not owed in bonds, which means it is not governed by CACs. The current system is not fit for purpose.

Others will say that the proposed reforms would mean that debt would no longer be issued in London. If that were true, it should have happened after we passed the Debt Relief (Developing Countries) Act 2010. It did not. Nations lend here and seek to have their borrowing issued here not because we have weak legal protections, but because we have the strongest and deepest legal system in the world, with centuries of case law. That is why, as my right hon. Friend the Member for Oxford East (Anneliese Dodds) pointed out this week, 95% of African bonds are issued in England and Wales. This solution can work, and that is why the IMF and the World Bank support it.

I was an economist working in one of the poorest nations on earth during its worst drought in living memory. Yes, I saw people starve, but I also saw a nation being built from its own revenues, making budgets and implementing policies. A state that could end extreme poverty was and is in the making in Somaliland. That nation saw its economy grow by 16% in real terms between 2012 and 2020, despite a global pandemic. That reduction in poverty is about more than numbers—it is fewer people scratching around in the dirt desperately hoping that something will grow so that they can feed their children. That is what ending extreme poverty means.

We can end extreme poverty. When my father was born into rural poverty in India, he had a one in four chance of dying before his fifth birthday, while 70% of the world’s population lived in extreme poverty. Today, a child born in the same place is 10 times less likely to die, and only one in 10 of the world’s people now live in extreme poverty. We can end extreme poverty in the years to come by changing British law to end this debt crisis.

We can live up to and indeed continue the legacy of the former Members for Sedgefield and for Dunfermline East, who helped to cancel £30 billion of debt in 2005. Giving African nations the ability to use their own revenues, build their own Governments and create nations can end poverty. By making sure that private lenders can and must participate in debt renegotiations, we in this place can help to end extreme poverty for free.