Restructuring African debt by linking it to investments
10/04/2021
Interview with Agi by Roberto Ridolfi, president of Link2007
“Providing debt relief and financing a sustainable recovery in Africa”, this is the theme of an event organized today by the OECD Development Center and the Istituto Affari Internazionali with the aim of involving high-profile experts in the debate on the G20’s support for programs and initiatives addressing liquidity and debt sustainability issues in Africa . In view of the G20 to be held in Italy on 30-31 October 2021, Link2007, a network of Italian NGOs, is also working on a proposal that concerns the crucial issue of the debt of the most disadvantaged countries: “The Release G20 initiative, promoted by the Link2007 Network for the Italian presidency of the G20, suggests some reflections on how to deal with the Pan-crisis to revive cooperation for sustainable development” explains Roberto Ridolfi, president of Link2007.
Release G20 will serve “to implement a flexible conversion, total or partial, of public and private debt” and “will help create SDG funds (Sustainable development goals founds, an international cooperation mechanism in favor of sustainable development) to exploit, stimulate and guarantee other financing for sustainable investments” according to Ridolfi. The composition of many developing countries’ sovereign debt has changed over the years, with China becoming the relative majority creditor in many countries and private debt in emerging markets growing by 300% from 2010 to 2019. In view of this, Link2007’s proposal goes in a median direction with respect to the proposals for total debt forgiveness or reduction of the same:
Debtor countries” explains Ridolfi “will have to face a serious debt crisis already in 2021, as the pandemic has only aggravated the problem of the sustainability of their debts, given the higher costs of public health, the collapse of tax and trade revenues, the freezing of credit markets and capital flight”. Hence the proposal to restructure the debt linking it to investments : “Without investments there is no economic development, no jobs are created, there are no tax revenues and therefore there can be no repayment of the debt.
The G20 Release initiative can help generate a sort of recovery fund for fragile countries, linked to the achievement of the Sustainable Development Goals ”. An initiative that rests on a strong spirit of flexibility whereby, in some cases of highly indebted countries that are deemed not to have sustainable debt levels after the pandemic, partial or total debt cancellation remains an option.
Is it a simple debt refinancing? According to Ridolfi, no: “The conversion of debt into an investment fund has many advantages: it increases ownership of the respective country, urges to take full responsibility for the management of funds, thus helping to build the administrative capacity of the country, attracts and guarantees other investors”.