THE British government has exposed itself as a “dishonest broker” when it comes to tackling the global debt crisis, Christian Aid has said.
In a briefing on the Fourth International Conference on Financing for Development (FfD4), which began in Seville on Monday, the head of campaigns and UK advocacy at Christian Aid, Jennifer Larbie, said that the Government was “actively blocking” proposals that would deliver solutions to a debt crisis that was “systematically locking low income countries in perpetual poverty”. These included a UN process to establish “comprehensive, fair, and effective multilateral mechanisms for preventing and resolving sovereign debt crisis and providing adequate debt relief”, and the drafting of legislation to compel private creditors to engage in debt relief.
“These policies are cost-free. They would cost the UK Government and UK taxpayer absolutely nothing, yet are being blocked whilst the UK Government isn’t bringing anything to the table that would deliver a meaningful shift on debt relief,” she said.
“This leads me to the conclusion that the UK Government is exposing itself as a dishonest broker when it comes to tacking the debt crisis. Global civil societies see this, low-income governments see and are infuriated by it, and I think the UK Government’s reputation is being diminished by the day and the FfD4 process is an opportunity to hold them to account.”
Last December, the World Bank reported that developing countries had spent record amounts of more than £1 trillion servicing their foreign debts in 2023. It has calculated that 38 countries are in “debt distress” or at high risk of it. In February, the then development minister Anneliese Dodds told a gathering at the London Stock Exchange that 3.3 billion people lived in countries spending more on servicing their debt than on health and education services (News, 7 March).
The UN bills the International Conference on Financing for Development, which began on Monday, as “the only space where leaders from all governments, along with international and regional organisations, financial and trade institutions, businesses, civil society and the UN System unite at the highest levels, fostering stronger international cooperation”.
Addressing the briefing, the executive director of the Center for Economic and Social Rights, Maria Ron Balsera, said that, while it may not dominate the headlines, the summit would “shape the rules of the global economy for years to come. . . These are the systems that decide whether countries can fund hospitals, schools, and climate action, or remain trapped by debt repayments, tax abuse or illicit financial flows. . . Fiscal consolidation and austerity prescriptions from international financial institutions have compounded inequalities and driven the new crisis.” The UK — the world’s second largest financial centre — had a “vital role to play” as a member of the G7, G20, the Paris Club (an informal group of 22 creditor countries), and as one of the largest shareholders of the IMF and World Bank.
Existing mechanisms for tackling debt lacked transparency, left debtor countries negotiating under duress, and did not include private creditors, she said. “A UN framework convention on debt would establish a fair, transparent, rules-based process grounded in human rights and sustainable development where all stakeholders including civil society have a voice.”
AlamyA farmer ploughs a field for potato cultivation on the outskirts of Sanaa, Yemen, last November
The UK Government has estimated that 45 per cent of sovereign debts are governed under English law, including 90 per cent of sub-Saharan ones; litigation to recover debts takes place in English courts. Ms Balsera suggested that, by passing legislation requiring private creditors to participate in debt relief on fair terms, the UK would “unblock money restructuring overnight”.
The UK’s International Development Committee published its report on debt relief in low-income countries in 2023, warning that they were spending more on debt-servicing as a proportion of Gross National Income than at any point in at least the past 30 years. It concluded that legislation “may be required to compel all creditors, including the private sector, to participate in debt relief”. Last year, the Government said that it was “focused on delivering a market-based (contractual) approach to private sector participation”.
A submission from the Foreign, Commonwealth and Development Office (FCDO) to the inquiry noted that “despite full cancellation [of debt in previous years], many countries have once again developed high debt vulnerabilities. This emphasises the need for efforts to strengthen countries’ own economic and debt management, and for lenders and borrowers to focus on sustainable lending and borrowing practices to help avoid future problems.”
Pointing to earlier schemes including the Heavily Indebted Poor Countries (HIPC) initiative, it argued that the current “heterogeneous global creditor base . . .would make finding consensus on such a comprehensive debt relief initiative challenging.” Today, a smaller proportion of debt is owed to the World Bank, the International Monetary Fund, and wealthy Western countries. Almost 60 per cent of the debt of low-income and middle-income countries is owed to private creditors, while China is now the largest official creditor in more than half of lower-income countries.
From 2001 to 2010, through schemes such as the HIPC, at least 49 low-income countries owing amounts to the UK had all or part of their debts written off, with the total now standing at £1.3 billion. The FCDO has argued that this means it has a “limited role . . . in active debt restructurings to lower-income countries”, but aims to work through international fora to “influence coordinated approaches”.
In 2020, the G20 launched the “Common Framework”, designed to enable debt restructuring, with external debts reduced or written off. Countries must secure the agreement of private-sector creditors before an agreement can be reached with government creditors. The British government has acknowledged “regrettably slow progress”: of the 73 countries eligible only four have applied, of which three have reached agreements (Zambia, Ghana, and Chad).
Shortly after the briefing, an outcomes document agreed by the heads of governments attending the Seville summit was published. It encourages the G20 to “further strengthen the Common Framework for Debt Treatments” and to “encourage jurisdictions to consider passing legislation aimed at limiting holdouts by creditors to facilitate effective debt restructuring”. It also requests the UN Secretary-General to “convene a working group, with the IMF and the World Bank, tasked to propose a consolidated set of voluntary guiding principles on responsible sovereign borrowing and lending, and proposals for their implementation”.
In response, Emma Burgisser, Christian Aid’s economic justice lead, said: “The original draft called for a meaningful intergovernmental process at the UN to build a fair, transparent, and effective debt workout mechanism — something the Global South has long demanded. But the final version weakens this mandate to a process that merely makes recommendations.” It was “a political compromise that protects creditors and leaves debt-distressed countries without effective solutions.”
The director of Zimbabwe Council of Churches, Admire Mutizwa, described how the debt crisis was affecting his country, where health professionals were emigrating and the health service lacked basic supplies. The education system had been “crippled” and there was a “limited ability” to respond to climate-inducted disasters. Africa must have a “strong voice” in negotiations which restructure global finance, he said. More grants were needed to tackle the climate crisis, “instead of further contracting debt”.
On Monday of last week, the UK Chancellor launched the London Coalition on Sustainable Sovereign Debt to “bring together private sector stakeholders and Government to find pragmatic solutions to more sustainable sovereign debt financing in developing economies”. This would include “making debt contracts clearer and more transparent, improving the way loan terms respond to natural disasters, and addressing problems with group lending practices”. The UK Government has also pledged to further development “climate-resilient debt causes”, under which debt repayments are suspended for countries responding to a natural disaster linked to climate change.
