About 40% of countries in Africa are at a debt-stressed level, while COVID-19 has forced a strong fiscal response globally as nations try to avoid lasting structural damage to their economies. This is according to Governor Lesetja Kganyago of the South African Reserve Bank, who spoke at the fourth annual Distributed Interdisciplinary Sovereign Debt Research and Management Conference, or D-DebtCon. The conference is taking place virtually this year in nine countries, spanning five continents, from 7 to 18 September.

Governor Kganyago delivered the keynote address during D-DebtCon’s opening session, which was hosted by the University of Pretoria’s Centre for Human Rights in the Law Faculty.

Watch the Opening Session of #DebtCon4

He also cautioned that the debt crisis faced by the continent in the 1980s and 1990s had shown that poor management of debt would lead to an inability to pump much-needed financial resources into key development areas.

While debt has a very important role to play in economic development, one should also reflect on the challenges and pitfalls presented by debt to developing countries in Sub-Saharan Africa,” he said. “Experience has shown that unsustainable debt burdens and rising debt service costs crowd out spending in key development areas such as education, health and infrastructure.”

In her welcome remarks, Law Faculty Dean Professor Elsabe Schoeman said the conference is taking place at an opportune time and that the sharing of experiences from across the world would be beneficial. “The COVID-19 pandemic has exposed new sovereign debt challenges and exacerbated old ones. This should be a very interesting conference.”

Governor Kganyago’s speech highlighted the sovereign debt situation from an African Central Bank perspective, which linked broadly to the topic of the day: ‘Africa’s Debt Conundrum’. This was also the theme of the panel discussion that followed his address.

In the discussion, three papers were presented on various issues, including the impact of interest holidays and how countries can perfect sovereign debt contracts, how international law and economics affect sovereign debt, and outlining a plan for countries to survive market turmoil. Among the speakers were Deputy Governor of the Bank of Ghana Elsie Awadzi; Rodrigo Olivares-Caminal, a Professor in Banking and Finance Law at the Centre for Commercial Law Studies at Queen Mary University in London; and Stratos Nikolaos Pahis, Acting Assistant Professor of Lawyering at NYU Law.

The Interdisciplinary Sovereign Debt Research and Management Conference, or DebtCon, was launched in January 2016 at the Institute of International Economic Law at Georgetown University in the US. Its mission is to engage scholars and practitioners across geographic, disciplinary and institutional boundaries to help solve pressing sovereign debt problems. DebtCon brings cutting-edge research to bear on policy and market practice and helps make research more impactful with exposure to real-world policy and market experience.

Each day of this year’s conference will feature academic and policy panels in South Africa, Italy, Argentina, Switzerland, Singapore, the US, Barbados, the UK and China. Participants will discuss topics such as sovereign debt sustainability and debt vulnerabilities, restructuring architecture, debt transparency, fiscal federalism, resilience against pandemic and climate shocks, financial history, and the particular debt challenges facing countries in Africa and Latin America, as well as China and the European Union.

Summary of Presentations by Magalie Masamba

On 7 September the International Development Law Unit, Centre for Human Rights of the University of Pretoria hosted the first session of the DebtCon 2020. The session was opened with a keynote address by the Governor of the South African Reserve Bank, Lesetja Kganyago. The Governor spoke about the challenge of sovereign debt from an African and a central bank perspective, with a focus on the key issues of how funds are utilized and managed and the resulting impacts on infrastructure delivery and basic service delivery. He provided a historical assessment of the different waves of debt crisis since Bretton Woods, from the 1980s to present day. In concluding the address, the Governor provided three main takeaways—the need to improve debt management and fiscal discipline, the need for more transparency in lending and restructuring and the need for domestic resource mobilization. Flowing from the opening address by the Governor that highlighted the numerous challenges, the three presenters made proposals.

First, Rodrigo Olivares-Caminal proposed the use of an interest rate holiday clause that is modeled on the hurricane clauses that have been used in countries such as Grenada to provide temporary relieve when there is a natural disaster. To Olivares-Caminal, the question is why should the markets limit benefits of hurricane clauses to natural disasters? As such the proposal is to use a similar clause for other ex-ante triggering events such as GDP shrinkage linked to a specified debt. This proposal is geared towards liquidity and not solvency issues.

Second, Stratos Pahis assessed what he calls the ‘BITS and Bonds dilemma’, which is the increased creditor enforcement options, including for hold out creditors, bargaining power and decrease in finance efficiency caused by Inclusion of debt as investments in bilateral investment treaties (BITs). He proposes that the dilemma should be resolved by treating all creditors equally through a flexible interpretative approach to BITS. Other proposals include reforming BITs to exclude sovereign debt; issuing interpretative statements by parties to exclude sovereign debt from BITs; or the use of bond clauses to exclude debt from BIT dispute resolution.

Third, Mark Walker assessed the need to get additional resources to states without contributing to debt distress (a way to get new money). He proposed the development of national or regional stabilization funds. These differ from debt because countries withdraw from the fund when, for instance, commodity prices drop. Unlike debt, the obligation to reimburse is not linked to a schedule, but when prices rise above some specified level. Such a fund could be used to support one country or region in a restructuring and could be used by official creditors to provide funding to countries in need.

Elsie Addo Awadzi, the second deputy Governor of the Ghana Bank in her commentary, noted the extremely vulnerable position that African countries now find themselves because of the COVID crisis. For these countries, market access on favorable debt terms was already a challenge, which now has been exacerbated by COVID19. She then asked the question of ‘What are the options for African sovereigns’ and tested the different proposals. On the interest rate holiday, a major concern is whether such an instrument will increase the cost of borrowing and could this lead to moral hazard? On the BITs  and Bonds, African countries should rethink the future design of these instruments. On the stabilization fund, the question about additional donor fund availability for this purpose should be explored. While all these proposals do have potential, the more intricate details will determine their suitability to the African context.

For more information on the conference click here


 Subscribe to our newsletter