African governments owe three times more debt to Western banks, asset managers and oil traders than to China, and are charged double the interest, according to research released by Debt Justice. Western leaders through the G7 have attributed the failure to make progress on debt restructuring to China, but the data shows that this is mistaken.
Just 12 per cent of African governments’ external debt is owed to Chinese lenders compared to 35 per cent owed to Western private lenders, according to the calculations based on World Bank data.
Furthermore, interest rates on private loans are almost double those on Chinese loans, while the most indebted countries are less likely to have their debt dominated by China.
The figures have been released ahead of the G20 Finance Ministers meeting on 15-16 July in Indonesia. Campaigners are calling on Western countries, particularly the UK and US, to compel private lenders to take part in the G20’s debt relief scheme, the Common Framework. Three African countries have applied for the Common Framework, none have yet had any debt relief.
Tim Jones, Head of Policy at Debt Justice, said: “Western leaders blame China for debt crises in Africa, but this is a distraction. The truth is their own banks, asset managers and oil traders are far more responsible but the G7 are letting them off the hook. China took part in the G20’s debt suspension scheme during the pandemic, private lenders did not. There can be no effective debt solution without the involvement of private lenders. The UK and US should introduce legislation to compel private lenders to take part in debt relief.”
Yungong Theo Jong, Head of Programmes at the African Forum and Network on Debt and Development (Afrodad) said: “Multilateral and private creditors remain the biggest creditors to African governments. Loans from China have increased Africa’s indebtedness, but by far less than Western lenders. All lenders must participate in debt relief. Western governments must lead the way by making private lenders cancel debts.”
The calculations show that the average interest rate on private sector loans is five per cent, compared to 2.7 per cent on loans from Chinese public and private lenders.
Twelve of the 22 African countries with the highest debts are paying private lenders over 30 per cent of their total external debt payments (Cabo Verde, Chad, Egypt, Gabon, Ghana, Malawi, Morocco, Rwanda, Senegal, South Sudan, Tunisia and Zambia). In contrast, debt payments to Chinese lenders are over 30 per cent in just six of the 22 countries (Angola, Cameroon, Republic of Congo, Djibouti, Ethiopia and Zambia).
IMF Managing Director Kristalina Georgieva has called on the UK and US to pass legislation to stop private lenders blocking debt relief agreements. President of the World Bank David Malpass has made similar calls. Virtually all international debt contracts are governed by New York or English law, with 90 per cent of bonds of countries eligible for the G20’s debt relief scheme governed by English law.
In 2020 and 2021 China took part in the G20’s debt service suspension initiative, but the scheme only suspended 23 per cent of the external debt payments of countries that applied, because private and multilateral lenders were not included. Western governments need to make their private lenders take part in debt restructurings to convince China to also move further on debt relief.– Ekklesia.