by Sarah Ribbert (Project Coordinator) and Arabella Wintermayr (Editor)
For the first time in fifty years, the International Monetary Fund (IMF) and the World Bank Group convened on the African continent. Here are the main developments regarding the debt crisis from the Annual Meetings in Marrakech.
Marrakech, Morocco was a fitting location for the recent International Monetary Fund (IMF) / World Bank Group Annual Meetings. For the first time in half a century, the two influential global financial institutions convened on the African continent – a place that is home to many countries affected by the dire consequences of the debt-climate nexus.
Yet, presented with a key opportunity to act, the IMF and the World Bank missed the chance to tackle the burgeoning debt crisis in many emerging markets and developing economies. Only through concerted efforts to provide relief and support will it be possible to tackle both the looming debt crisis and climate change, which are intrinsically linked. Prior to the meetings, 68 climate-vulnerable countries, collectively known as the Vulnerable Twenty (V20) Group, called for comprehensive reforms to the international financial architecture to immediately align with climate science.
Members of the Debt Relief for a Green and Inclusive Recovery (DRGR) Project were on the scene to engage with policymakers and convene events to further policy dialogue on key issues. Below, we profile the main developments regarding the debt crisis from the Annual Meetings.
The GSDR: Too Little, Too Slow
The Global Sovereign Debt Roundtable (GSDR), a response to “the shortcomings in debt restructuring processes, both within and outside the Common Framework,” met at the Annual Meetings, though the co-chair progress report shows no substantial progress to date.
Critically, while there is an agreement on Comparability of Treatment among official bilateral creditors, there is still no consensus on how the private sector should participate in debt restructuring. Given that private creditors are the largest creditor group in the Global South, the Group of 20’s Common Framework (CF) needs adequate incentives to ensure that private creditors participate and bear a fair share of the burden.
For example, private creditors are noticeably absent from Zambia’s memorandum of understanding with its official creditor committee, signed after a lengthy negotiation period. The example of Zambia also underscores the importance of speeding up the debt negotiation process. Separately, Ethiopia is in the process of debt restructuring under the CF. After China agreed to provide debt relief, Ethiopia is now seeking comparable treatment for other creditors.
While the progress made by Zambia, Ethiopia and Ghana is encouraging, the Group of 24 (G24) also stressed the need for a broader reform of the CF, making it accessible to middle-income countries.
Against this background, the recent G20 Finance ministers’ communiqué falls short, as it includes a paragraph welcoming all existing efforts to improve the CF, but lacks substantial agreements in that direction.
Multilateral Development Banks: Crucial For Effective Debt Relief
As Marina Zucker-Marques, Ulrich Volz and Kevin P. Gallagher argued in a recent op-ed for Financial Times Alphaville, all creditors must join debt negotiations, including multilateral development banks (MDBs), in order to achieve the levels of debt relief necessary for true debt sustainability and space to invest in green and inclusive recoveries.
As a new report by DRGR shows, including MDBs in debt relief is crucial to effectively addressing the mounting debt crisis in the Global South, whereby debt haircuts are unavoidable. At Annuals, the report was presented and discussed at a roundtable event with representatives from prominent civil society organizations and international financial institutions, including the United Nations, World Bank, Financing Development Lab, Eurodad and the V20.
Regarding the participation of this other key creditor, MDBs, the GSDR suggests their involvement through the provision of net positive flows of concessional finance and grants – rather than a debt haircut.
However, the approach proposed in the GSDR’s progress report may discourage countries from pursuing debt relief under the CF. As Volz and Zucker-Marques explained in Project Syndicate, “at least half of the total external sovereign debt stock in 27 debt-distressed countries – many of which are low-income countries (LICs) or small island developing states (SIDS) – is owed to multilateral creditors. Thus, even if all bilateral and private debt were canceled, exempting MDBs from debt restructuring would prevent some of the world’s most vulnerable countries from achieving a full recovery.” In light of the debt levels that many indebted countries owe to MDBs, additional resources alone will not provide sufficient relief.
What is more, as Zucker-Marques and Gallagher point out and as the V20 noted at the Ministerial in Marrakech, not only is MDB participation feasible, but it could benefit all parties, including the banks’ shareholders.
Concerted Efforts Needed
The social-economic impacts of the debt crisis as well as possible solutions were the main topics of discussion at a Civil Society Policy Forum (CSPF) event, co-sponsored by the DRGR Project. On the occasion, DRGR Project Co-Chair Yuefen Li presented the DRGR proposal on how to incorporate all creditor classes in debt relief negotiation fairly and equitably.
The urgency of tackling the current debt crisis was highlighted by a recent briefing by Development Finance International and other CSOs, finding that many developing countries are experiencing the worst debt crisis on record, with over 38 percent of revenue on average being channeled to debt service.
The IMF Fiscal Monitor also makes plain the urgency of the debt crisis, but falls short of recognizing the need for urgent action. While debt sustainability is acknowledged, the report refrains from speaking of a current debt crisis, calling it instead a “liquidity problem” to which it proposes scaling up concessional finance by MDBs and domestic reforms as responses.
Nevertheless, it is encouraging that the IMF will consider reviewing its controversial surcharge policy, which disproportionately affects middle-income countries and requires borrowing members to pay more at exactly the moment when they are most squeezed from market access in any other form.
In sum, the Annual Meetings did not yield substantial new announcements on the debt crisis. It is the world’s impoverished nations that bear the brunt of this inaction at the moment, but it may ultimately affect the entire planet. As Kenyan President Ruto emphasized in the New York Times: “We can’t fix the climate issue unless we fix the debt issue.”
Thanks for reading, and until next time.
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