Developing World: Debt Reduction

Lord Collins of Highbury Excerpts

Tuesday 13th February 2024 Lords Chamber

Asked by

[Lord Collins of Highbury]

To ask the Secretary of State for Foreign, Commonwealth and Development Affairs what recent discussions he has had with international counterparts on a strategy to reduce debt in the developing world.

[The Secretary of State for Foreign, Commonwealth and Development Affairs (Lord Cameron of Chipping Norton) (Con)]

My Lords, we set out our commitments on developing countries’ debt in our international development White Paper. The Treasury and FCDO regularly engage with international partners to address rising debt vulnerabilities in developing countries. The UK also co-ordinates with other official creditors to provide debt restructurings where needed, both at the Paris Club and via the G20 common framework.

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[Lord Collins of Highbury (Lab)]

My Lords, after Covid, we had the common framework from the international community. Sadly, only four countries have applied. Certainly, the situation is getting worse, and not better, in terms of debt. Does the noble Lord accept that a huge step forward would be to agree with global partners on a workable definition of debt sustainability to provide countries in debt distress a more level playing field?

[Lord Cameron of Chipping Norton (Con)]

I thank the noble Lord for his question. We are happy to accept the IMF definition of debt sustainability and to use it as a baseline. We are happy to look at other ideas but, given the IMF’s role, that makes sense. I completely accept what lies behind the noble Lord’s question: 58% of low-income countries are now either in debt distress or at risk of it, so he raises an important point. However, I think the definition is done by the IMF.

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[Lord Cameron of Chipping Norton (Con)]

My noble friend is absolutely right that Sri Lanka is in debt distress; it has been working through a programme with the IMF. We wish the new Government in Sri Lanka well as they go through this and try to make sure that they can build a brighter future for that country.

[Lord Collins of Highbury (Lab)]

My Lords, in introducing the White Paper, Andrew Mitchell said that it cannot be right for individuals in this country to borrow money at 4% or 5%, while for developing countries that are addressing such huge issues, the cost of borrowing is so high. What discussions have the noble Lord’s officials had regarding private creditors holding low-income country debt? Does he agree that a fairer system is needed between private creditors and countries in debt distress?

[Lord Cameron of Chipping Norton (Con)]

First, I congratulate the noble Lord on joining a club of which I am a member, in being personally sanctioned by Vladimir Putin. It is a badge I wear with honour, and I am sure he will too.

[Lord Collins of Highbury (Lab)]

That is news to me.

[Lord Cameron of Chipping Norton (Con)]

The noble Lord is in very good company—I follow these things very closely.

The noble Lord is absolutely right about the importance of making sure that we do not have so many private sector holdbacks that hold up the vital debt restructuring of countries that get into trouble. We are trying to use things such as collective action clauses that work on bond issues—so they cannot hold out against repayment —as well as the majority voting provisions in new debt issuances so that private sector lenders are not stopping a country getting the debt restructuring they need.