Prior to a meeting today at the United Nations on sovereign debt restructuring, the UN Conference on Trade and Development (UNCTAD) announced that in order to deal with sovereign debt crises – which are creating a growing threat to economic stability in many developing countries – the world is in need of new ways to tackle the problem.
Such crises are an obstacle to achieving the 2030 Sustainable Development Goals. Countries in Africa and elsewhere have been accruing debt while their ability to repay shrinks. Falling commodity prices, a rising dollar, and the prospect of higher interest payments are making repayment even less likely.
“Sovereign nations do not have the protection of bankruptcy laws to restructure or delay their debt repayments in the same way that private debtors do,” said UNCTAD Secretary-General Mukhisa Kituyi in a news release issued ahead of the meeting.
He warned that “while creditors cannot easily seize non-commercial public assets, sovereign debt faults bring major problems in terms of reputation and access to further loans.”
In the past, debt crises have led to highly speculative funds run by non-cooperative or hold-out bankers, including by “vulture funds,” which aggressively pursue debt repayments, rendering them expensive and potentially disruptive. Since 2000, hedge funds have been the primary plaintiffs in 75 per cent of all litigation cases against sovereign debts.
New research will be published next month in a report, indicating that the latest round of borrowing dates to 2006, when the Seychelles issued a sovereign bond, making it the first sub-Saharan African country to do so in the past 30 years, with the exception of South Africa.
In the subsequent decade, Angola, the Democratic Republic of the Congo, Côte d’Ivoire, Ethiopia, Gabon, Ghana, Kenya, Namibia, Nigeria, Rwanda, Senegal, Tanzania and Zambia have accrued more than $25 billion in bonds, with a principal amount of more than $35 billion.
The report’s researchers, Ingrid Harvold Kvangraven and Aleksandr V. Gevorkyan, say that many African countries are now facing repayment difficulties, pointing to Ghana as an example.
“Ghana is in a difficult, yet unfortunately common position, as it depends on commodity exports such as gold, oil and cocoa,” they said.
“With falling commodity prices, the country faces a decline in revenue and a growing current account deficit,” they added, pointing out that Ghana’s total debt, both external and domestic, is more than 55 per cent of its gross domestic product.
Last year, after research contributed by UNCTAD, the UN General Assembly adopted a resolution stating that sovereign debt restructuring processes should be guided by basic international principles of law such as sovereignty, good faith, transparency, legitimacy, equitable treatment and sustainability. The resolution reflected a growing concern about renewed sovereign debt crises and long-term debt sustainability in the context of continued global economic fragility.