A New Debt Crisis in the South?

‘Third World’ Debt Crisis External debt in the global South

Impacts: In 1980s Latin America Population living in poverty increased from 144 million to 211 million Africa Population living in extreme poverty increased from 205 million to 330 million

The global ‘Jubilee’ campaign

HIPC debt cancellation from mid-2000s 5

Conditions to get debt cancelled Tanzania had to privatise water system, which failed a few years later Malawi had to sell off grain reserves, year before food crisis Zambia had to privatise bank, overturning a parliamentary vote

Some debts cancelled $130 billion cancelled for 36 countries; debt payments fallen by three-quarters Spending on healthcare increased from 5 per cent of national income to 7 per cent Children enrolled in primary school increased from 6 in 10 in 1990 to 8 in 10 by 2010

Global South debts increasing again

Lending boom causes ‘Quantitative Easing’: Low interest rates and abundance of money in Western world following global North financial crisis = more interest and desire to lend to the South New lenders such as China Northern donors shift more into loans, eg, from the World Bank (including climate loans) 11

Impacts of boom in nine countries most dependent on foreign lending Slightly higher growth (4.7% compared to 3.6%) But in five of the nine, number of people living in poverty (World Bank definition) had been increasing Inequality increasing in all nine Staying just as dependent on commodity exports 12

Commodity dependence has increased 13

Money in and out of Africa

Shocks and crisis 15

Since 2014: dollar increase in value 16

Currency depreciations since start 2015 Ghanaian Cedi: Down 39% against the dollar Mozambique Metical: Down 49% against the dollar Tanzanian Schilling: Down 28% against the dollar Zambian Kwacha: Down 46% against the dollar 17

Impact now Large currency falls across many countries Increases in debt and debt payments IMF adjustment programmes: Ghana, Guinea, Liberia, Malawi, Mali, Niger Rwanda, Sierra Leone Mozambique (suspended) Zambia (expected soon) 18

Changes in GDP & External Debt since 2013 19

Debt today 20

Countries in or at risk of debt crisis

Countries in or at risk of debt crisis

Ghana

Ghana’s rapidly increasing debt 24

Who Ghana’s debt is owed to 25

Interest cost of Ghana’s debt Interest rates: Eurobonds and other private external: 7.9% - 10.75% Cedi debt: 7% (average real interest rate) Other governments: 4.5% estimated Multilateral institutions: 0% - 2% 26

Projected Ghana government external debt payments 27

Assumptions for sustainability IMF view that external debt is sustainable based on assumptions: $GDP growth averaging 8.2% a year until 2035 Government $ revenue grows in line with GDP A fall in average interest rate on external debt from 5.1% to 4.1% Continual primary budget surpluses 28

Real government spending projected to fall 29

External bond refinancing could be difficult Most recent Eurobond autumn 2015: $1bn borrowed at 10.75% But World Bank guaranteed $400m This implies cost would have been 16.25% without guarantee As long as government keeps paying interest until 2025, lenders will have made a profit 30

Mozambique

Mozambique

Mozambique and the hidden debt 33

Mozambique and the hidden debt 34

Mozambique and the hidden debt $726.5 million Eurobond: issued through Credit Suisse and VTB Bank in 2013. English law, London branches. Not approved by the Mozambique parliament. $597 million direct loan: 81% of the loan was from Credit Suisse, 19% VTB. English law, London branches. Not approved by the Mozambique parliament. $535 million direct loan from VTB. English law, London branches. It is now thought to be in default. Not approved by the Mozambique parliament. 35

Mozambique and the hidden debt

Mozambique and the hidden debt 37

A New Debt Crisis in the South?