Private creditors push back against blanket debt relief for Africa

LONDON (Reuters) – Prominent emerging market creditors have created a working group to help heavily-indebted African countries with the economic impact of COVID-19, but have criticised G20 calls for blanket debt relief.

The Africa Private Creditor Working Group (AfricaPCWG) said it was coordinating the views of over 25 asset managers and financial institutions representing total assets under management in excess of $9 trillion.

The Group of 20 major economies (G20) had urged private creditors to match their agreement to suspend debt payments from the world’s poorest nations’ for the rest of the year so the money could be spent on tackling the coronavirus pandemic.

In a statement, the new working group, which includes funds Farallon Capital Europe, Aberdeen Asset Management, Amia Capital, Greylock Capital and Pharo Management, said it would work with countries on a “case-by-case” basis.

But it warned a one-size-fits-all solution would be counter-productive.

“A rushed, blanket approach developed during a time of crisis will put that crucial long-term access to capital at risk,” the AfricaPCWG said, adding it was ready to ensure that access to private capital remained for countries.

The World Health Organization has warned COVID-19, the respiratory disease caused by the new coronavirus, could infect between 29 million and 44 million people in Africa this year if it’s not contained, meaning already weak healthcare systems could be overwhelmed.

African countries face a combined $44 billion debt-servicing bill this year alone and Tim Jones, head of policy at Jubilee Debt Campaign, a UK-based charity working to end poverty, underscored calls for debt relief.

“Unless debt payments to private lenders are cancelled, IMF loans and the G20’s debt suspension will be used to pay high interest to private lenders, an outrageous use of public money,” he said.

FREE RIDE

The G20 announced on April 15 an agreement with the Paris Club group of major creditor nations to freeze debt payments for the 77 poorest countries from May 1 to the end of the year. Their goal was to free up more than $20 billion that poor governments could use to buttress their health services.

Ethiopia’s Nobel Peace Prize-winning Prime Minister Abiy Ahmed this month said the measure would need to be extended to next year too to help the continent fund investment in healthcare and social safety nets.

But Kenya’s finance minister here on Friday said his country would not seek a suspension of debt payments because the terms of the deal were too restrictive, and he was concerned about the impact that debt relief might have on Kenya’s credit rating.

Friday’s push back against blanket debt relief underscores the difficulty such a proposal faces.

World Bank head David Malpass said last month the private sector shouldn’t be given a “free ride”.

The Institute of International Finance (IIF) trade group initially recommended the private sector participate, but subsequently flagged private creditor’s concerns to the IMF, World Bank and Paris Club about their involvement.

The group estimates the total amount of external debt in the countries in the G20 Debt Service Suspension Initiative has more than doubled since 2010 to over $750 billion. Debt now averages more than 47% of GDP in these countries, too — a high reading considering their stage of development.

On Friday, IIF said the launch of specialized groups like AfricaPCWG was a natural step, given the heterogeneity of borrowers and credits, and backed a case-by-case approach. It said it welcomed “critical conversations” between eligible countries and their creditors.

AfricaPCWG, which declined to name its other members, said it would provide African governments, the G20, the IMF and other multilateral development banks with a forum through which all stakeholders “can engage transparently and constructively” on issues from the coronavirus crisis.

“Transparent, above board, creditor coordination can be a positive move,” said Eric LeCompte, executive director, Jubilee USA Network, an independent charity with affiliations to Jubilee Debt Campaign.

“However, some creditors just want to form a block to force more loans and keep their payments coming, instead of agreeing to real debt relief so all parties can get through a crisis.”