Global Sovereign Debt Roundtable

Alice Huaut 

May 8th, 2023

The first Global Sovereign Debt Roundtable occurred in February 2023, where the World Bank Group President David Malpass announced: "The goal of these roundtable meetings is to have open discussions, help identify barriers to debt restructurings, and develop steps to improve the process. We want to find a process in which everyone can put forward their concerns and positions".

April 12th, 2023, the third meeting of the Global Sovereign Debt Roundtable took place in Washington. These roundtables are crucial to address change and are reminders of the lasting indebtedness of economically developing countries. This article analyses the origins of global sovereign debt for economically developing countries and the solutions discussed today.

Debt is the amount owed by the borrower to the lender. The borrower must pay more than the sum they borrow; this is called interest. They pay back this additional sum over time. This allows borrowers to make purchases and pay back over time. The cost of this exchange–interest–enables lenders to lend money to other borrowers. If money was lent freely, creditors would run out of money and would not be lending money in the first place. Countries are often responsible for numerous costly expenses–such as healthcare, education, and pensions–, and most of the time, the money spent exceeds the money earned by a country. Public services, therefore, require countries to borrow money from other countries, international institutions such as the World Bank (WB) and the International Monetary Fund (IMF), banks, or other commercial lenders.

Moreover, countries also borrow money to develop economically. For instance, borrowing to further invest in infrastructure can generate more sources of income and be profitable for countries in the long run. However, borrowing becomes beneficial for countries if the process permitting them to do so is well-structured and well-intentioned. If not, countries will not generate enough income and struggle to reimburse the debt.

Following the end of World War II and by the end of the 1960s, traditional forms of colonialism ended. However, the consequences of colonialism continue to shape international exchanges and market forces. Corruption is used to justify high levels of debt in economically developing countries rather than the flaws of the Bretton Woods system. For historical context, newly independent countries borrowed immense sums from the WB and IMF with floating interest rates. Countries borrowed money when the interest rate was low and agreed to pay more if the interest rate were to fluctuate. As a result, when interest rates saw a huge increase, during the 1980s and 1990s debt crisis, borrowing countries could not repay their lenders. The WB and the IMF provided structural adjustment loans to severely indebted countries. However, in exchange, recipient nations were obligated to reform various macroeconomic and fiscal policies under a neoliberal framework, typically cohering around economic stabilization, trade and financial liberalization, deregulation, and privatization. This solution came at a high social cost and has shown little success regarding macroeconomic stability in the long run.

Recently, the role of China in sovereign lending has complicated debt restructuring. In a short period of time, since 2017, China has become the largest official bilateral creditor: lending more than the WB, IMF, and the Paris Club members. Between 2000 and 2021, China provided 128 bailout loans totaling $240 billion to 20 struggling countries–and about $100bn in 2019-21–. Chinese loans can benefit economically developing countries. However, as a creditor China is characterized by its “extreme” opacity. As a result, the policy stance and the geopolitics surrounding debt restructuring with China and its institutions have made debt restructuring much harder.

The decision for Global Sovereign Debt Roundtables in 2023 echoes the struggles economically developing countries have faced and continue to face. Whether it might be the covid crisis or the war in Ukraine, external factors and historical legacies influence the economic development of countries. The world appears to be on the verge of yet another debt crisis.

India, the current president of the Group of 20, the IMF, the World Bank, and this new Global Sovereign Debt Roundtable have agreed on some points. Numerous of the most vulnerable countries had their debt payments postponed by the G20, a group of 19 countries, and the European Union. They implemented the so-called Debt Service Suspension Initiative (DSSI). During the moratorium on debt service payments, the G20 hatched the Common Framework for Debt Treatments to aid low-income nations in restructuring their debt after the moratorium expired. Zambia has been attempting to restructure its debt for over two years and is struggling. For example, Zambia seeks to modify the terms of loans to make them simpler to repay by negotiating reductions in the face value of debts and lower interest rates. Additionally, it cannot get emergency IMF funding without making progress on its debt restructuring, and its creditors are at odds over the type of relief it can provide. "All the while, Zambia’s debt continues to grow". This example is the antithesis of offering assistance. It makes sense that so few nations have followed Zambia's lead or requested help under the Common Framework.

The effectiveness of the Global Sovereign Roundtables will depend on the changes implemented and processes implied when restructuring debt–going beyond the present relief provided by the Common Framework–. A suggested change would be to freeze the debt for countries like Zambia while they engage in good-faith negotiations would give creditors an incentive to speed up the process and would encourage more indebted countries to apply. Nations going through this process should experience a reduction in their debt repayment obligations to enable economic growth. David Malpass, the outgoing president of the World Bank, and António Guterres, the secretary general of the United Nations, both support that course of action.

Furthermore, further including borrowers during debt restructuring discussions could ensure the success of the Global Sovereign Roundtables. The AfricainBusiness highlights that the presence of borrowers during these roundtables would have to be accompanied by acute borrower coordination. This would help express their views within the current creditor-centric architecture of debt relief reforms.

As the World Bank and IMF have, at times, failed to support the financial and monetary sustainability of counties, these Roundtables will hopefully provide a way to work within and outside these bureaucratic structures to ensure that more countries reach sustainable levels of economic prosperity. There have been increases in resources to the IMF lending facilities to lend more to low-income countries: such as the Poverty Reduction and Growth Facility, created in 1999, and the Resilience and Sustainability Facility, created in 2022. Nadia Fettah Alaoui, Minister of Finance of Morocco, said “We applaud the World Bank Group and International Monetary Fund for their openness to reform and urge them to continue to listen to stakeholders, especially from Africa, a continent of 1.5 billion people that receives the majority of resources from these institutions…now is the time to put a plan of action in place for real and sustainable change that better serves Africa’s people”. The challenge countries will face includes; ensuring that these roundtables do not simply serve a performative purpose. Outlining the specificity of issues to best target where change must occur becomes crucial to these broad well-intentioned discussions. Even though the debt roundtable is insufficient, individuals present can strategically use it to advance borrowers' goals and strengthen their voices and agency within the creditor-centered global financial system.

A country’s debt may be complex due to the numerous expenses states are subject to, and lenders may be willing to lend immense amounts to country borrowers–since states cannot go bankrupt–. However, our understanding of debt should not be skewed because indebted countries differ in some aspects from the debt individuals or enterprises may have toward commercial banks. Understanding why some countries are more indebted than others and struggle to restructure their debt should be viewed in the light of historical and geopolitical decisions which maintain power relations between countries. The Global Sovereign Debt Roundtable discussions will hopefully allow a way forward to help reduce the unjustified high debts numerous economically developing countries are still subject to. 

Edited by: Youssef Eljarray