LSE: Public Lectures and Events

Episode: Debt Relief and Africa During COVID-19: The Global Response
Date: July 9, 2020
Host: Dr. David Luke (UN Economic Commission for Africa)
Panelists:

• Emma Amara Ekorushe (Centre for the Study of the Economies of Africa, Oxford)
• Prof. Anna Gelpern (Georgetown Law, Peterson Institute for International Economics)
• Eric LeCompte (Jubilee USA Network)
• Dr. Shelley Zeyu (LSE, Harvard Kennedy School)

Overview

This episode examines the urgent challenge of African debt sustainability in the wake of the COVID-19 pandemic. Panelists explore the economic impact of the crisis on African economies, evaluate the adequacy of the global response—particularly around debt relief initiatives—and consider the roles of various creditors, including China and private lenders. The discussion further analyzes the structural complexities of the current debt landscape and debates the need for more effective and equitable solutions.

Key Discussion Points and Insights

1. The Economic Impact of COVID-19 on Africa

[01:19 – 07:00]

• Dr. David Luke opens by quantifying the impact: Africa's projected economic growth for 2020 dropped from 3.2% to about 0–1%.

  "This is a loss in GDP growth of over $43 billion... UNECA also estimate that close to 8 million people will be pushed below the poverty line of $1.90 per day due to COVID-19." – David Luke [02:13]

• Africa faces:

  • High debt-to-GDP levels (avg 64%)
  • High fiscal deficits (avg 3% of GDP)
  • High borrowing costs and currency depreciation
  • Large debt service obligations (often exceeding healthcare spending)

• Stigmatization in financial markets deters African countries from calling for full debt forgiveness, with most lobbying only for temporary standstills on debt servicing.

2. Debt Profiles and Immediate Response Mechanisms

Presented by Emma Amara Ekorushe
[08:13 – 19:30]

Pre-pandemic Debt Build-up:

• African government debt rose rapidly (from 31% to 50% of GDP between 2014–19), driven by:
  • Post-2008 search for yield among international creditors
  • Infrastructure investment needs not met by traditional lenders

COVID-19: The “Twin Fiscal Shocks”

• Lockdowns shrank economies and reduced tax revenues.
• Commodity price collapses further cut income for exporting countries like Nigeria and Zambia.

Categories of African Countries Affected:

• Winners: Eligible for both G20 and IMF debt service moratoria (e.g., Burkina Faso).
• Near-winners: Can access IMF loans but not moratoria, or choose not to access out of credit rating fears (e.g., Nigeria spends 99% of revenue on debt service post-pandemic).
• Left-behind: Ineligible for both moratoria and IMF loans (e.g., South Africa, Zimbabwe).

Private Creditor Challenge:

• Over half of Africa’s external debt is held by private lenders, who have yet to join debt relief efforts.

  "What could be happening is that they could be using these funds to serve debt, which defeats the entire purpose of the programs." – Emma Ekorushe [15:22]

Recommendations:

• Extend moratoria beyond 2020
• Engage private and bilateral creditors more robustly
• Advocate for credit rating agencies to freeze sovereign ratings during the crisis
• Favor grants over new loans to avoid ballooning future debt

3. Institutional and Legal Complexities

Presented by Prof. Anna Gelpern
[20:03 – 35:56]

• Debt Relief Is a Tool, Not the Goal:
  Debt relief must enable urgent humanitarian and development priorities, not be pursued for its own sake.

• Heterogeneity in Creditors and Instruments:

  • Modern sovereign bonds can be held by a wide variety of investors (banks, funds, pension managers)—the value and risk profile depends on who holds them.
  • The creditor landscape is more fragmented than in the past (e.g., 1980s Paris Club).

• Risks and Gaps in the Current Debt Architecture:

  "Coordination is ephemeral at best. Today we don’t see a substitute for the old institutions, by the way, which were not all that great." – Anna Gelpern [28:29]

  • Collective action problems in debt restructurings given wide diversity of creditors
  • Market liquidity has been provided to some African countries, but often at tough terms (short maturities, collateralization), increasing future fragility
  • Private creditors largely absent from coordinated solutions

• Default Should Be Demystified:

  "We need to stop fetishizing default... There are some cases where avoiding default is just not worth the cost of not meeting basic human needs." – Anna Gelpern [34:07]

  • Emphasizes the need to focus on substance, not formal credit events
  • Rethink the role of credit rating agencies and regulatory responses

• Look Beyond Africa:

  • Cases in Argentina and Ecuador may set precedents for future debt crises

4. The Scale of the Financing Gap and Calls for a New Framework

Presented by Eric LeCompte
[37:09 – 50:57]

• COVID-19 brings famine and extreme hunger risks to 265 million people, mostly in Africa.

• Most African countries lack even basic health infrastructure to manage the health crisis.

• The G20 and IMF measures—six-month debt cancellation for 19 countries in Africa, $12–20 billion relief for 40 African countries—"helpful, but not enough."

  "The consensus among every finance minister in Africa is that just this year, for Africa to get through just this year of the crisis, just in debt relief, they need $44 to $45 billion." – Eric LeCompte [42:30]

• Middle-income African countries, which account for much of Africa’s extreme poverty, are ineligible for existing relief schemes.

• The private sector has not participated meaningfully in debt relief ("They’ve not accepted the invitation... We must compel the private sector.")

• Urges for:

  • Expansion and extension of existing debt standstills and cancellation
  • Access to special drawing rights (international reserves) for African countries
  • Creation of a new version of the Heavily Indebted Poor Countries (HIPC) initiative—"a HIPC2"—with a fair and comprehensive restructuring process for all sovereigns, recognizing both creditor and debtor rights.

5. China’s Unique Role as a Creditor

Presented by Dr. Shelley Zeyu
[51:42 – 69:11]

• China's Share: Holds about 20% of African external debt (~$143 billion), much of it from the past 5 years.

• Debt Maturity and Structure:

  • Initial loans: interest-free, grants, concessional
  • Shift toward commercial and corporate loans—less concessional, more market-based
  • Complex creditor composition within China; not a monolith, making coordination challenging

• China’s Official COVID-19 Debt Relief Measures:

  1. Participation in G20 moratorium (suspension—not cancellation—of payments through 2020 for eligible poor countries).
  2. $2 billion global response commitment announced by President Xi at WHO assembly.
  3. Unilateral cancellation of all zero-interest loans to Africa due by end of 2020 (but amount unknown; excludes concessional and commercial loans).

     "The cancellation only, of course, contains zero interest debt and only debt that are due before the end of 2020. ...so far, it's correct that there are no firm commitments for any debt relief programs beyond 2020." – Dr. Shelley Zeyu [57:39]

• Caveats and Limitations:

  • Most relief is temporary or limited; China remains cautious, balancing domestic priorities.
  • Future: debt-to-equity swaps or increased Chinese equity investment in Africa may expand, but are controversial.

• China Faces Its Own Crisis:

  • Plans to eradicate domestic poverty by end of 2020 have been challenged by COVID-19

• Geopolitics and Realpolitik:

  • Debt relief is a strategic calculus; China stands to lose if African economies implode

Notable Quotes & Memorable Moments

• On the purpose of debt relief:
  "Debt relief is not an end in and of itself. It is a means to ensure that urgent humanitarian and development needs take priority."
  – Prof. Anna Gelpern [22:37]
• On African fiscal constraints:
  "We were using about 60% of our revenue for debt servicing...now using about 99%. Which leaves little fiscal room for any other thing."
  – Emma Ekorushe [14:52]
• On private sector participation:
  "We can't simply invite the private sector. We must compel the private sector."
  – Eric LeCompte [46:59]
• On the shifting aid landscape:
  "China is both a rich country and a developing country at the same time."
  – Dr. Shelley Zeyu [62:54]
• On lessons learned:
  "After 1996 and 2005, we saw that debt levels across the continent reduced significantly. But...we’re seeing debt levels picking up again...we hope we don't get to a point where we need such large scale debt relief initiatives again."
  – Emma Ekorushe [80:30]

Important Q&A Segments

(Select questions and responses; times approximate)

• [70:49] Why are some countries “left behind” by relief efforts?

  • Emma Ekorushe: Mainly income category and creditworthiness. Some countries (e.g., South Africa) are ineligible for G20/IMF relief either due to higher income status or poor macroeconomic fundamentals.

• [73:40] Has the approach to debt cancellation changed since Jubilee 2000?

  • Eric LeCompte: Yes. The debt environment is now far more complex (more creditors, types of debt, legal issues). Calls for a modernized, global bankruptcy process for sovereigns.

• [87:00] On the cycle of debt accumulation and relief:

  • Prof. Anna Gelpern: Suggests rethinking the form of financing itself; tying debt service to humanitarian outcomes, making official sector debt more flexible, and focusing on solving systemic issues rather than assigning blame to creditor “bad apples.”

Synthesis and Takeaways

• COVID-19's combined economic and health shocks threaten to undermine 20 years of poverty reduction in Africa.
• Current debt relief efforts—though unprecedented—are far from meeting Africa's actual financing needs, especially for middle-income but vulnerable countries.
• Private sector creditors and China must play a more active, coordinated role in genuine relief efforts.
• There's a strong consensus for reimagining the international financial architecture—debt restructuring, aid, and support must become more flexible, equitable, and less rigidly tied to old models.
• Ignoring the lessons of the last global debt relief wave (HIPC, MDRI) risks repeating cycles of unsustainable debt and crisis.

End of Summary