Analysis

How Will Africa, Indebted To Global Creditors, Repay The New Debt Trap Caused By Coronavirus?

By Pinky Khoabane

AS AFRICA goes cap-in-hand to the International Monetary Fund (IMF), the World Bank and private lenders for support to help the continent in the fight against the coronavirus, the truth is that more wealth leaves Africa than enters it. Those to whom the envoys recently deployed by the African Union to seek financial assistance to deal with the pandemic are the same people who have plundered the continent through “financial aid” in loans and either directly through multinationals repatriating profits and illegally moving money into tax havens. And the question that must be asked is how Africa, already indebted and pushed into deeper crisis as a result of the pandemic, will pay the new debt and afford basic services like healthcare, provision of water, sanitation and education for its people post covid-19. 

Research by a coalition of UK and African equality and development campaigners published in 2017 claimed the rest of the world is profiting more than most African citizens from the continent’s wealth – by more than $40bn (£31bn). The research challenged the “misleading” perceptions of foreign aid. https://bit.ly/34TDArr

We know that debt is a tool used by the rich and powerful to exploit the poor and deepen inequality. The IMF has loaded African countries with debt and left them with no recourse but to slash budgets for basic needs like education and healthcare resulting in immense poverty on the continent. 

Last week, G20 and IMF announced over $12billion in debt suspension for this year, following global calls for debt cancellation for lower income countries in order that they can fight the coronavirus pandemic. The IMF announced it would cancel $215 million of debt payments for 25 countries over the next six months. This is a group of some of the poorest countries and includes Sierra Leone and Liberia, according to the Jubilee Debt Campaign – a global movement fighting for the cancellation of debt of the world’s most indebted countries. 

Later in the week, G20 finance ministers announced they had reached an agreement to suspend debt payments by 77 countries to G20 and other governments from 1 May to the end of 2020, estimated to be $12 billion. However, these payments will not be cancelled but will be due for payment  between 2022 and 2024, along with interest accrued during the period of suspension. 

How will these countries be able to repay the debt if it is not cancelled outright but is simply suspended? 

According to the Jubilee Debt Campaign: “For the 77 countries covered in this deal, other governments make-up 45% of external debt principal and interest payments due in 2020, multilateral lenders 29% and private lenders 26%. Jubilee Debt Campaign has calculated that 64 countries currently spend more on debt payments than healthcare..

“Virtually all international debt contracts are owed under UK or New York law. 90% of African government external bonds are owed under UK law. This means if any country stops making debt payments under these deals, they can be sued by the creditor in London. In 2010 the UK passed the Debt Relief (Developing Countries) Act which prevented countries from being sued by creditors who were not participating in a previous round of debt relief. This legislation needs to be updated to protect countries in this latest round of Covid-19 related debt crises”.

Here at home, yesterday, President Cyril Ramaphosa announced “an extraordinary coronavirus budget – of  around R500 billion – to direct resources towards fighting the pandemic”.

He said several measures would be undertaken to raise the money which included “reprioritisation of around R130 billion within the current budget” while the rest would be raised from institutions such as the Unemployment Insurance Fund (UIF), and from global partners and international finance institutions. 

“To date, the World Bank, International Monetary Fund, BRICS New Development Bank and the African Development Bank have been approached and are working with the National Treasury on various funding transactions,” he added.

In other words, South Africa is also heading towards acquiring extra debt on top of the trillions of rands it already owes. Finance Minister Tito Mboweni in his 2019 Budget Speech announced that in the 2018/19 financial year, the country’s national debt exceeded R3-trillion and it was expected to rise to R4.5-trillion in the next three years.

But what is more terrifying is information published by Statistics SA that “according to National Treasury” when South Africa’s gross loan debt stood at R2,2 trillion (in 2016/17), “interest payments accounted for 9,2% (or R146 billion) of general government expenditure (R1,58 trillion) in 2016/17. In other words, for every R100 of total spending, R9,20 was used to pay interest on debt. This is more than what was spent on the hospital (R105 billion), tertiary education (R77 billion) and housing (R69 billion) functions during that period”.

We don’t ask too many questions and the serious ones during hard times like the one we are facing currently but we should ask the unpopular questions – how will we pay the debt and what will it mean for our already struggling healthcare, education and other social-economic struggles? 

 

 

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