Earlier this week, the IMF agreed a financing plan to clear $1.4 billion owed to it by Sudan. The agreement was reached on the first day of the ‘Summit on Financing for African Economies’ being held in Paris this week by President Macron.
This is good news, but what are the lessons we can take from this for the wider calls for debt cancellation and the burgeoning global South debt crisis?
Having implemented a package of aggressive economic reforms agreed with the IMF and made arrangements to clear debts with other multilateral institutions over the last year, securing this deal with the IMF was the final hurdle the Sudanese Government had in order to apply for broader debt relief under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative – an initiative established in 1996 to relieve the unsustainable debts of developing countries.
Sudan has been heavily indebted since private banks began recklessly lending to the country in the 1970s and 80s. Subsequent economic crises and civil war meant that they could no longer service their debts, but instead of encouraging debt relief to a sustainable level at the time, the international community continued to lend. This led to further indebtedness for Sudan and ultimately to the country defaulting on its loans in 1984. Very few repayments have been made since, as so very few further loans have been given either.
Following the ousting of dictator Omar al-Bashir in 2019 after a three-decade long rule, Sudan now has a new transitional government who, under the leadership of Prime Minister Abdalla Hamdok, are working to secure economic recovery for the country, including clearing their debts to open doors to future loans.
Sudan’s debts total about $60 billion, with $38 billion of this owed to other governments. However, a significant proportion of this is made up from interest payments that have been accruing for decades. For example, Sudan currently owed the UK Government £861 million, but 80% (£684m) of this is from “made up” interest rates of 10-12%, making a strong case for a complete debt write-off.
Many countries so far have agreed to cancel debts, or at least engage in discussions on how to secure debt relief for the country, including France, Germany, Italy, Norway, China, Kuwait and Saudi Arabia. The UK Government has said it supports debt relief although has yet to make a formal pledge beyond a £330 million bridging loan they gave to Sudan in January.
A concerning risk of the UK Government writing off Sudan’s debt is that the cancelled amount could be counted against the UK’s aid budget, and thus mean there is less to spend on other international development-related activities. The UK Government has yet to comment on this.
Sudan also owes about $6 billion to private creditors. The country’s debt to private creditors should technically be included in anticipated negotiations under the HIPC initiative, however, in the past this has not always been the case with private creditors continuously being let off the hook. Given their initial role in reckless lending to the country, it is only fair that they participate in the negotiations.
While there is still a way to go to secure debt relief for Sudan, these events show us that debt relief is possible where there is political will. It also shows the lengths that countries have to go through to secure debt relief when so much of the debt is illegitimate. Sudan has been pushing for debt relief for some time, and for debts that were the result of aggressive lending from the private sector and high interest rates. With 52 countries now in debt crisis, we’ll need much faster action to avert problems for other nations on the brink.
We hope to see more leadership and action taken next month when G7 leaders will meet to address the wider issue of unsustainable debts for all developing countries.