Debt in Africa

Lyn Brown Excerpts

Tuesday 21st November 2023 Westminster Hall

[Ms Lyn Brown (West Ham) (Lab)]

It is an absolute pleasure to serve under your chairship, Mr Vickers. I sincerely thank my hon. Friend the Member for Slough (Mr Dhesi) for securing the debate. His record of standing up for people affected by crises in Africa and around the world speaks for itself—it is absolutely exemplary. He and I agree that working with African countries to address their concerns, challenges and opportunities is very important. As we know, Africa’s potential is massive. It has young, dynamic, talented, fast-growing populations, but African economies are being held back by climate heating, disasters, conflict and debt.

Debt sustainability is a terribly complex issue once we get into the details, but on one level it is very simple: Governments hamstrung by debt burdens cannot meet their people’s needs or aspirations. Currently, uncertainty around debt is driving away investment and undermining many African countries’ economic growth and climate progress. The average debt ratio in sub-Saharan Africa has nearly doubled over the past decade, going from 30% of GDP in 2013 to almost 60% last year. The cost of debt has become far more expensive, and even before recent crises, it was far higher than for higher-income countries.

Many countries are recovering from the economic damage wreaked by covid, climate shocks and conflicts, including Russia’s invasion of Ukraine, so it is not surprising that 20 African countries are either in debt distress or at high risk of it. We have already seen the attempts of four African states to manage huge debts thwarted by the slow and cumbersome common framework process.

Ghana, for example—one of our key partners in Africa—is cut off from international markets while debt negotiations go on and on. Ghana cannot reap the full rewards of its resources and enormous human potential, and we in the UK cannot access the mutual benefits that would flow from its growth. The Bridgetown initiative, the Nairobi declaration and key figures at the International Monetary Fund are calling on us to speed up debt relief talks and make the global debt system fairer and more efficient.

I am pleased to see the Government’s international development White Paper recognise the need to improve global debt processes, but there are obviously huge questions about the Government’s commitment to take the necessary steps if we are actually going to do that. As we know, one of the problems with the common framework is that a small number of private creditors can hold up the entire process by refusing to take part in restructuring, in the hope of securing a higher return than others. We know that many of those private creditors operate under English law, because of the strength of the City of London in global finance. It would be helpful to hear from the Minister whether her Government have changed their position since May.

Will the Minister review the benefits and risks of legislating to stop creditors from acting in bad faith and holding up negotiations? Does she agree that the Debt Relief (Developing Countries) Act 2010 did not have the negative unintended consequences that some feared it would? When the international development White Paper was being developed, why did the Government not see the cross-party consensus behind that Act as a starting point to build on over the coming years? Surely recognising the UK’s history of action and outsized role in private sovereign debt could strengthen our influence and credibility at the G20 and other international fora. It could enable us to work better with the United States, opening up opportunities for co-ordinated reform. It could supplement our efforts to improve multilateral systems and debt transparency.

In her response, I can guess the Minister might talk about the good work being done to roll out climate resilient debt clauses, but does she recognise that those clauses will not be enough on their own? It is not only countries in the grip of an extreme weather event, or a health disaster, that will need fiscal space. In many African countries, the huge swings in global interest rates and commodity prices are equally relevant.

The international development White Paper states that the Government will support suspensions of debt payments while negotiations are ongoing, and, “where relevant”. I would be grateful if the Minister said more about what the Government mean by “where relevant”, and what they are doing about bringing back consensus on debt service repayment suspensions at the G20. Does she agree that suspensions can speed up negotiations, which is surely in all our interests?

The Minister knows that calls have been made for the UK to use our influence at the IMF to produce a definition of unsustainable debt for the common framework. In May, her Government rejected those calls when the International Development Committee recommended action. Perhaps she could say a little about what she is doing to make the definition of unsustainable debt clearer and how she is helping to make progress more predictable.

I know that the Minister of State, Foreign, Commonwealth and Development Office, the right hon. Member for Sutton Coldfield (Mr Mitchell), understands the need for action, from his very welcome comments about vulture funds over the past months. The international development White Paper mentions support for voluntary collective action clauses and majority voting provisions. Does the Minister here today agree that those have not fully solved the problems caused by vulture funds?

When I speak to African ambassadors, Ministers, business leaders and civil society groups, they are clear about what they want from the UK: partnership, not patronage. I heard the same message last week in Kenya. When we talk about our collaboration with African countries, it is not just about development assistance or private investment—as the Minister knows, we would love to see more of both. It is equally about structural reform and smart collaboration with our partners. For example, I know that the Minister of State, the right hon. Member for Sutton Coldfield, has recently been working hard on the global food security summit. I gently say that if we did more to unblock the common framework process, that would free up funds for African countries to spend on their food security agendas.

We all recognise the role of humanitarian aid. It saves lives in massive numbers and is absolutely essential, but we know that supporting resilient food systems that prevent hunger and malnutrition would be a far better way to proceed. At very little cost to ourselves, we could take steps to make sure that the processes we influence, such as the global sovereign debt system, really do provide fair benefits to us and to the countries that use them. We recognise that these issues are complex and sometimes genuinely difficult, but none of us wants to undermine the basis for future private bilateral and multilateral investment in African countries. The mutual benefits and the need for such investments are huge. However, we need to seriously consider the argument that greater confidence in comparability of treatment between private and official creditors will not undermine investment; instead, it could enable investment by creating more transparency and certainty.

These debates are technical, but they are also really important for hundreds of millions of people. It took three very long years after Zambia’s default for a debt restructuring even to be agreed in principle. Even worse, the process is far from over. The issue of comparability of treatment between official creditors and bondholders is a core barrier holding Zambia back.

Doing our bit to solve the debt crisis is essential to being a good partner to our friends. It affects the UK’s long-term interests. Let me stick with Zambia for a moment: we are talking about a country that is likely to play a massive role in the global green energy transition through its wealth in copper and other critical minerals. By being a positive partner to Zambia, we can demonstrate the serious offer we have to growing countries across Africa and support progress on security, democracy and human rights in the wider southern and central Africa regions.

We have already seen Zambian leadership on these issues, through their role in election monitoring in Zimbabwe, for example. That is the positive side—opportunities can be seized. However, there is a negative side, too, because the debt crisis is one of the background factors that enables insecurity to grow in many African countries. Where Governments cannot provide services to their populations, people are left alienated and hopeless. We know that insurgencies, coups and armed groups thrive where trust and hope has vanished. By speeding up restructuring processes, we could do something to address the root causes of insecurity in Africa, at little cost to the Treasury.

When it comes to the threats that face us, the biggest is climate heating. Whether Africa makes its green transition in a fair and timely way matters to the UK, as we all live on the same planet, and there is enormous potential to mitigate and adapt to climate change across the continent. However, the funding is not there, and the international development White Paper acknowledges that it cannot all come from international assistance or private sector investment. We have to free up African public funds if climate change is to be tackled in a joined-up, strategic way—the same way we plan to tackle it here in the UK.

The Government’s White Paper acknowledges some of the harms done by our failing global debt system. That is truly welcome, but I hope the Minister agrees that what we need to do now is go beyond acknowledgement and act, because there is no more time for us to lose.