Reacting to minister for development Anneliese Dodd’s speech at the London Stock Exchange today, Heidi Chow, Executive Director of Debt Justice, said:
“The government has rightly made tackling unsustainable debt in lower-income countries a key priority. But the measures announced today are like fighting a forest fire by offering a water pistol in ten years’ time. The UK needs to demand much deeper debt cancellation for lower-income countries, and to pass legislation to ensure debt payments are suspended during negotiations, so that no creditor can use the English courts to avoid agreeing to debt relief.”
Notes
Anneliese Dodd’s said:
“My challenge to the commercial banks now is to introduce the equivalent clauses for syndicated lending – that the UK government has worked with the International Capital Markets Association, legal and financial advisors based in the City, and international partners to develop. No lender has implemented them – yet. So today, I am announcing that the UK government will offer support for the first ten transactions that put ‘majority voting provisions’ into existing or new lending to low-or-middle-income countries.”[1]
Such clauses have been discussed extensively over the last decade with no take-up. If they were introduced, all they would enable is a vote between all of the syndicate of a particular loan, in the same way as old Collective Action Clauses in bonds. They would not enable amalgamated votes on restructurings between different syndicated loans, or between syndicated loans and other forms of debt such as bonds, direct commercial bank loans, resource-backed loans or swap lines. Therefore, even if they did exist, they would make a minimal improvement. Debtors would still be left negotiating each loan individually, and hold-out creditors could easily buy portions of individual syndicated loans, or other forms of debt not covered by such clauses.
Anneliese Dodds also said that collective action clauses: “played an important role in ensuring a smooth process and strong private sector participation, in recent debt restructuring negotiations in Ghana and Zambia – avoiding situations where one or two bondholders can hold up a deal.”
Neither the Ghana or Zambia debt restructurings have been concluded. Zambia reached a restructuring deal with bilateral creditors in July 2023. A deal with bondholders was announced in 2023 but bilateral creditors rightly rejected this because it did not give enough debt relief to Zambia. A final deal was reached with bondholders in May 2024. Agreements in-principle were announced with Zambia’s Chinese private creditors in September 2024. However, the IMF says a further $1.6 billion is owed to other private external creditors who have not yet agreed deals.[2] It is now 18 months since the deal with bilateral creditors.
Ghana reached an agreement with bilateral creditors in January 2024, and an in-principle deal with bondholders in July 2024. No deals have yet been agreed with other private creditors, who are collectively owed $2.7 billion.[3] A US Senator has called on the IMF to make Ghana pay American private creditors in full.[4] This suggests at least some of Ghana’s remaining external private creditors are seeking to get paid in full or on better terms than bilateral creditors or bondholders.
After the debt restructuring process is completed, both Ghana and Zambia will be one economic or climate shock away from being back in debt crisis.[5]
[1] https://www.gov.uk/government/speeches/new-partnerships-for-growth-fcdo-ministers-speech-at-the-lse
[5] Both Ghana and Zambia will be on the threshold between ‘moderate’ and ‘high’ risk under the IMF Debt Sustainability Framework. This means any shock will push them back to high risk, and so potentially needing another default or restructuring. https://www.imf.org/en/Publications/CR/Issues/2024/12/17/Zambia-Fourth-Review-Under-the-Arrangement-Under-the-Extended-Credit-Facility-and-Financing-559680 And https://www.imf.org/en/Publications/CR/Issues/2024/12/10/Ghana-Third-Review-Under-the-Arrangement-Under-the-Extended-Credit-Facility-Request-for-559334