African debt: the Paris Club accelerates the tempo

Ethiopia, Chad and the Republic of Congo are the last three states in addition to Pakistan to have obtained the green light from the Paris Club for a moratorium on the service of their debt, which brings to eight the number of African countries. having signed the memorandum of understanding on the subject since mid-April. The news was confirmed on Tuesday June 9 by a press release.

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8 African states

“The representatives of the Paris Club creditor countries have agreed to grant” to “the Republic of the Congo”, to “the Federal Democratic Republic of Ethiopia”, the “Republic of Chad” a “suspension of debt service for a fixed term, from May 1 to December 31, 2020 ”, specified in four separate press releases the Paris Club, which brings together the informal group of creditors from these countries.

Faced with the plunge in the economy, the G20 had taken in mid-April the unprecedented decision to suspend for one year the debt repayments of the poorest countries weakened by the pandemic – an initiative declined since by the 22 countries of the Paris Club , as well as by a handful of emerging creditors (China, India, Saudi Arabia, Turkey, South Africa).

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As for the Paris Club, which has united since 1956 so-called “industrialized” countries such as France, the United States, Germany or Japan, there is talk of “an acceleration phase”: it received 31 requests, including 22 countries in sub-Saharan Africa.

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A little oxygen for African economies

In mid-May, the first country to benefit from a moratorium was Mali; Nepal, Grenada, Dominica, Cameroon, Mauritania, Burkina Faso and Niger followed, before the four beneficiaries announced on Tuesday. “Among these countries, 12 countries have now signed a memorandum of understanding with the Paris Club. For these 12 countries, the total amount of maturities in 2020 thus deferred has reached approximately $ 1.1 billion to date, to which is added the carry-over of pre-existing arrears, “added the Paris Club. The objective of this multilateral institution is to enable “creditors to collect their debts in arrears and find an effective and rapid solution to the sovereign debt crises”.

“There is a year of grace in 2021, without service due on these deferrals, then a staggering to reimburse these maturities from 2022 to 2024”, explained on Wednesday the president of the Paris Club, Odile Renaud-Basso, during a conference call. “The objective is that the budgetary room for maneuver is used to cover urgent healthcare or activity support expenses. “

Nineteen other countries have also requested a Paris Club moratorium; their cases should “come to fruition quickly,” she observed.

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No question of debt cancellation yet

If this is a breath of fresh air for the countries concerned, their financial burden is only suspended and their enthusiasm is sometimes measured. “The suspension of debts (…) already augurs well, but we would have liked the Paris Club countries to proceed purely and simply to cancel the debts of African countries, more particularly that of Chad which is facing a security imperative, “Chadian government spokesman Oumar Yaya Hissein told AFP on Wednesday.

The proposed postponement in mid-April represents only a small part of the total indebtedness of the African continent estimated at 365 billion dollars, of which about a third is due to China alone.

The debt moratorium “is useful, (but) for many countries the moratorium will have to (…) be transformed into a cancellation program”, had hammered in April the president of the World Bank David Malpass. Faced with these reservations, we do not exclude from the side of creditors additional efforts.

At the end of 2020, “we will have better visibility, we will better identify which countries will need more structuring relief, with potentially a reduction in debt,” insists Ms. Renaud-Basso.

Currently, the moratorium initiative potentially concerns 73 debtor countries, including 38 in sub-Saharan Africa. “It is very likely that we will have additional demands (…) After having taken an extremely cautious position at the start, countries now seem more open,” she observed.

Some developing countries feared that the rating of their debt, their credibility and their access to the financial markets would be affected if they benefited from a moratorium wrongly according to the Paris Club.

At the level of the G20 powers, a total of 36 countries had applied for a moratorium at the end of May. But unlike the Paris Club, where a single simultaneous and highly coordinated agreement commits 22 creditor countries, the other G20 countries each negotiate bilaterally with each debtor.

“China (…) does the job. One concern is that it has multiple development banks and this is a fairly new exercise for it (…) But it is on the right track, ”noted Odile Renaud-Basso.

Finally, private creditors have been called upon to join the general moratorium effort, on a voluntary basis.

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