African countries heading for bigger debt implosion, warns Biti

Zimbabwe’s veteran opposition leader Tendai Biti says African countries should prepare themselves for a huge, unprecedented debt implosion by 2024 because there will never be another debt relief initiative to help out Heavily-Indebted Poor Countries (HIPC) on the continent.

And Biti has warned African countries to be careful with Chinese debt because its due diligence is a mixture of politics and economics.

Speaking during a SADC Debt Conference organized by the Open Society Initiative for Southern Africa (OSISA) in South Africa, Tuesday, Biti said African countries currently in debt distress should not expect Western countries to bail them out of their huge indebtedness on account of the rising surge in global populism and nationalism.

Biti, a former Zimbabwean Finance Minister, observed that the elevated debt levels in most African countries had continued increasing and that the capacity by citizens to control the elite that were contracting the debt on their behalf remained extremely minimal.

“We are heading for a bigger implosion; the crisis is bigger than what we went through in the 80s and 90s and in 2000s when Africa dealt with unsustainable debt. And for most countries, they went through a HIPC programme or a HIPC-like programme, for instance, in the case of Nigeria under President (Olusegun) Obasanjo. But I think that there will not be another multilateral initiative. Therefore, Africa is totally on its own! But the key thing is, how, as citizens, do we actually rein in the elite? How do we actually rein in the Executive? How do we make sure that our Constitutions are complied with? Our public debt contractions, many of which actually have prudent debt contraction ratios normally around 70 per cent; how are they actually contracted and more importantly, how do we make sure that if debt is contracted, it’s actually put to the use that future generations benefit? That’s why many progressive countries have what is called sovereign wealth funds. So, how do we vaccinate the future against our present commissions?” Biti wondered.

“In the 80s and in the 90s, debt was on the forefront and there were movements. Many of you remember the Jubilee Movement contesting debt; but over the years with the prima facie debt relief programme, debt has fallen off the political landscape. Now this has given licence, this has given a blank check to the Executive in most of these African countries to go on a ‘drinking spree’ oblivious of Parliament! So much of African debt is contracted outside Constitutional provisions that require Parliament to approve before debt is contracted. Much of this debt is contracted outside public debt contraction laws that require the approval of Parliament and much of this debt is not located in government per se, but in State-Owned Enterprises. So, it escapes the traditional IMF, World Bank criteria. So, the citizen becomes so dis-empowered…debt is increasing, but our capacity to control the elite that are contracting this debt is very minimal and we are losing it by the day. The debt itself is changing, the debt itself is becoming more sophisticated and Africa is getting a raw deal because our knowledge and capacity cannot match those who are lending to us.”

Biti warned that Africa was on its own in getting itself out of the debt crisis because there would never be another debt relief programme comparable to the previous efforts.

“In 1994, the G-7 countries went to Glen Eagles and designed what was known as the multilateral debt relief initiative, which we now commonly call the HIPC. There were good reasons why they did that; (Tony) Blair (former British Prime Minister) was a very big influence on that. But I don’t think there will ever be another Glen Eagles, I don’t think there will ever be another summit of the G-7 or G-20 in respect of which the global powers will sit and say: ‘let’s help African countries in debt distress’ because of a number of reasons, including the growing scrounge of nationalism, populism and the changing of the politics of the world. So, that means as African citizens, we have to really be worried because there is not going to be another Christmas party like the HIPC process that we’ve seen in the last 20 years or so,” Biti cautioned.

And Biti warned African countries to be careful with Chinese debt.

“We seem to be addicted to debt as African nations! And the fact that debt is a moral hazard doesn’t make any difference to any one of the African countries. But one of the solutions that is now there is this continuous process of rolling over your debt. The solution these days to debt seems to be: ‘let’s give you more debt to pay these old debts.’ So, you borrow from Peter to pay to John…so we haven’t learnt anything on how to deal with this…debt is increasing and the structure of loan contracting has changed. There are now players that have entered the market in a big way. The first one I want to mention is, of course, China. China has very unorthodox methods of lending to African countries. They also tend to take some shortcuts, their due diligence is a mixture of politics and economics,” Biti warned.

“So, there is no set objective standard when it comes to Chinese loan contraction. But Chinese debt is huge and it is now populating the balance sheet of most of these African states, and the problem with Chinese debt is that it escapes the traditional scrutiny of the IFIs, in particular the IMF, which has played the de-facto role of debtor enforcer on behalf of the Paris Club lenders, the World Bank and all that; China is outside that. So, in other words, China can lend to a country withstanding that its debt to GDP ratio is unsustainable and that has been happening, Zimbabwe is a good example.”

He also expressed concern that most African countries would be in a debt distress when their Eurobonds mature for repayment in 2024.

“The second hindrance on the market is the Eurobond, it’s huge! As of June, 2019, the total stock of Eurobond lent to Africa is US $104 billion. The majority of this debt will mature in 10 years’ time, in 2024. There have not been defaults, except in the case of Mozambique, Zambia…but come 2024, Africa will have this huge obligation to repay US $104 billion. Just this year alone, three countries: Benin, Ghana and Egypt have been on the market to source about US $10 billion Eurobonds and Egypt has actually been there twice! Now, the problem with Eurobonds is that there is no social connection at all, it’s just a financial transaction without any social impact. So, in my respective submission, I think the implosion is going to come in 2024 when this US $104 billion literally becomes due. Another increasing form of debt, now, is domestic debt. For the first time in the history of Zimbabwe, domestic debt, which is now around US $11 billion, now actually exceeds external sovereign debt of $9 billion. But often times the difference between domestic debt and external debt is just academic. In the case of Zimbabwe, all the debt are expressed in the US dollars. But the debt burden is still increasing,” said Biti.




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