By Chris Chenga
Can you remember what normalcy was before the coronavirus? Life, as we may have known it then, will never be the same again.
The reality of this is being forcefully imposed on us by the overwhelming contagion rates of the corona virus. It is dawning on us that this virus is neither just a distraction, nor a delay to whatever was our way of life. COVID-19 has almost completely dimmed our vision of any other ways of life in the future. Respectful of nature, we do know that life will go on.
But with each new case, there is pressure on our ability for abstract creativity to re-imagine how life could go on. It is understandable if the social mood deters us from venturing into creative, optimistic stimulus right now. Millions of people currently need counselling as we go through these times, and will do so after such a traumatic experience.
Yet, people are resilient! We have proven through history to not only move forward, but somehow make the future more promising than the past. The world’s biggest multilateral creditors have boldly stepped forward to exercise inspiring leadership.
Soon after the onset of the coronavirus, the World Bank Group created a new US$14 billion fast-track facility and availed US$160 billion in overall resources to respond to the crisis. A very justifiable hindrance to this initiative could be the debt overhang held by numerous nations.
Three months ago, the World Bank published a cautionary ‘Global Waves of Debt’ report, raising alarm to a presently happening Fourth Wave of unsustainable debt taking place in the world’s most fragile countries. It is especially untimely that COVID-19 occurred during the largest increase of unsustainable debt in the last fifty years. Undesirable an incidence, that is where the world found itself.
It is important to appreciate that debt stocks are claims to future proceeds that sustain the livelihoods of citizens from creditor countries. To humanise this transaction, low income citizens were faced with a costly fight ahead of them against Covid19, at a time they owed high income citizens the greatest sum due in over fifty years.
Rich vs Poor
Empathy is conditioned to tilt towards the citizens of poor countries, but we must acknowledge the revealing fact that high income citizens themselves do not have adequate resources to fight the pandemic.
Jane Bradley shared light to the strains of this disconcerting reality in her New York Times story ‘In Scramble for Coronavirus Supplies: Rich Countries Push Poor Countries Aside’. High income countries, suffering fatal shortages of crucial supplies themselves, are in direct competition for limited stocks with poor countries.
Nobody is rich enough to fight COVID-19, this is despite historic interventions such a $2 trillion stimulus by the US government, or a €870 billion in quantitative easing by the European Central Bank. The frustration is more overt in instances where President Trump unilaterally leaves the World Health Organisation. Such instances will recur especially on diplomatic platforms. It will be easy to overlook the very real financial and resource constraints that are breeding tensions.
Debt negotiations have been rough
As institutions squarely at the epicentre of shared finances and resources between the fretting global community, the IMF and World Bank have been able to uphold an exceptional humanity imperative during this time.
This is against a half-century long history of debt confrontation between member nations. The first debt wave ballooned from $7 billion to $133 billion in the 1970s to 1980s. At the time, high income countries were seeking means in which to diversify the composition of debt offered to poor countries so as to attract more capital. ‘Syndicated loans’ were devised as a means of getting more creditors to share risk, thus, incentivising more loans available to poor countries.
Syndicated loans were therefore loan facilities composed of multiple lenders to a single debtor at uniform terms that were laxer than market standards. African countries were huge beneficiaries of this structure. Average external debt rose from 12% of GDP in Sub-Saharan Africa to 82% of GDP by 1982.
By the 1980s, however, it was clear that poor countries were unable to meet these debt obligations, and the first negotiations on debt forgiveness had to begin. The Baker Plan was begrudgingly agreed on by private lenders. At the behest of their governments, they rescheduled and extended debt owed to them. Tensions grew more acrimonious as poor countries started to miss due payments, often in deliberate disregard. Duration of defaults averaged 13 years.
This was the first instance of poor countries straying into arrears. Yet again, at the intervention of high-income States, Brady Bonds were conceived in 1989. These were publicly guaranteed instruments by Paris Club governments meant to securitise and restructure the already stressed debts.
The first debt wave took nearly a decade to resolve, with several interventions by high income governments to ease tensions between financiers and defaulting poor countries which included Malawi, DRC, and Zambia. African countries eventually found relief in 1996 through the Highly Indebted Poor Countries initiative. This would be a recurring strategy of debt resolution well into the 2000s.
It is crucial to understand the role of the IMF in these transactions and their means of resolution. The IMF was designated as the institution to carry out policy design that would give comfort to lenders. For instance, for the Paris Club governments to lure in entities such as Credit Suisse, Goldman Sachs, or Prudential, they had to designate as part of its mandate, the IMF to recommend macro-economic designs for poor countries.
Moreover, these designs would have to persuade these private financiers to agree to concessional terms that were greatly less competitive than market rates. Hence, the greatest share of debt owed by poor countries in the last fifty years has, in fact, not been owed to multilateral creditors, but to bilateral governments and private creditors who relied on IMF surveillance.
The Chinese and Russian governments refer to IMF assessments in their own bilateral negotiations with poor countries. Hence, IMF Article 4 reports and Staff Monitored Programs are eagerly sought after by both public and private financiers.
The second debt wave was pre-eminently created by the Asian Financial Crisis, and did not really include Sub-Saharan Africa. The region was still going through rescheduling and restructuring of legacy debts from the first wave.
To perceptive observers, the third debt wave is strong evidence that debt has been less of a coercive diplomatic strategy than an actual strain between counterparties. The Great Recession of 2008 revealed that high income creditors, such as Greece, Spain, and Ireland, are as susceptible to debt overhangs just like poor countries are.
While debt diplomacy is perceived as a means of coercion by high income countries to impose their will on poor countries, ‘austerity’ showed otherwise. France and Germany acted similarly to recoup their capital in a manner that was no different to the pressures typically put on poor countries.
If one suggests that high income countries merely use debt as an oppressive strategy on poor countries, what can we deduce of this theory’s accuracy from the austerity confrontation within EU members post the Great Recession?
Indeed, it was the IMF that prescribed painful austerity policy design on Greece, Spain, Ireland, and many other EU countries under debt distress. Maybe then, there are two lessons to learn from the three debt waves of the last half century; repayment demands on debt are indiscriminate, and secondly, the capital of which Bretton Woods institutions influence, is of needy capital providers as well.
Applauded for being decisive on debt forgiveness
On April 14, 2020, the IMF issued a press release mentioning 25 countries that it has granted eligibility to its Catastrophe Containment and Relief (CCR) Trust. This allows the Fund to provide debt relief for countries that are hit by public health disasters. Structurally, the CCR Trust may open a path for debt distressed nations to access further facilities as created by the World Bank, and appeal to the leniency of private creditors.
For instance, Rwanda, Malawi, and Mozambique could likely receive exemptions on due coupons by other multilateral, bilateral, and private creditors after appearing on the IMF’s list. Zimbabwe is desperate for such kindness too.
This is the most crucial and relevant context of which to interpret the press release issued this week by the IMF.
Indeed, the World Bank’s Africa Pulse report, published a week earlier, expounds on this specific matter:
“External debt service paid by Sub-Saharan African countries to official bilateral creditors in 2018 amounted to US$ 9.4 billion (0.6 percent of the Sub-Saharan Africa’s GDP). In a region that may need emergency economic stimulus of US$100 billion—which includes an estimated US$ 44 billion waiver for interest payments to multilateral, bilateral, and private creditors in 2020— a debt moratorium would immediately inject liquidity and enlarge the fiscal space of African governments.”
Zimbabwe cannot afford to be left behind
Eligible countries for the CCR Trust are low-income economies. Zimbabwe is not categorically a highly indebted poor country, thus, it does not suit the rigid rules and guidelines of eligibility. Yet, the country has been in a prolonged economic and humanitarian crisis that it cannot resolve without debt forgiveness.
The country owes $10.6 billion, or 51% of GDP, to external debtors. Some $6.4 billion of that debt is in arrears. The country has no evident means to ever settle this debt. It is almost structurally impossible without debt forgiveness. This was the nation’s preexisting outlook before the coronavirus. If it looked bleak then, what chances does such an outlook have with a pandemic that has shown more resolute economies to be inadequate opponents?
How does one find an expression to describe a preexisting humanitarian crisis faced with an unprecedented pandemic that has put the entire global economy on its knees? The need for Zimbabwean debt forgiveness cannot be overstated!
The fatal proposition of Covid19
Zimbabwe is primarily exposed to exogenous implications of the corona virus. Minerals and tobacco account for about 60 percent of total export earnings, with about 66 percent of Zimbabwe’s exports going to South Africa. Since South Africa enforced a lockdown, Zimbabwe’s Chamber of Mines projected revenue losses exceeded $400 million. Meanwhile, commodity prices on global market continue to nosedive.
The Zimbabwean economy is the eighth most dependent economy on remittances in Sub-Saharan Africa. Inflows from kin in foreign countries contribute over 8% of GDP. A large share of remittances come from formally employed Zimbabweans, particularly in the UK, South Africa and United States. As the UK economy could shrink by 35% this quarter, with up to two million job losses, migrant workers including Zimbabweans face a risk of unemployment.
The United States has already seen a record 3.6 million unemployment claims. With neighbouring countries, namely South Africa and Botswana, shutting down borders, the highly informal cross border sector will be inactive for at least six months.
“Zimbabwe’s leadership, personally sheltered from squalor and endangerment, is casual to reality”
How do all these scenarios pose for Zimbabwe?
The country is one of the most informal economies in the world, with informal activity supposedly weighing over 60% of GDP. Internal responses to COVID-19 such as a lockdown for containment is unfeasible. But what other choice does a nation have but to lockdown when before a respiratory epidemic, hospitals lacked basic equipment like stethoscopes?
The healthcare system itself was barely breathing. It is a recurring circumstance in human history that some people have had leadership that doesn’t get it. The country’s administration, personally sheltered from squalor and endangerment, is casual to this dire reality.
Debt forgiveness wouldn’t be new sentiment
The world has continuously shown empathy to Zimbabwe over the years. Debt forgiveness would not be of an inexistent sentiment towards the country’s people. While donors continue to provide significant humanitarian support, as of January 2020 only $240 million, or roughly half of the $468 million requested under the UN Flash Appeal for Zimbabwe, had been committed. Close to eight million citizens, nearly half the country, is vulnerable to starvation and will rely on food aid.
Multilateral dialogue for debt forgiveness would not be deciding on concerns that are unknown to the global community; it is merely asking the world, to possibly do more.
Indeed, whatever disputes Zimbabwe retains with Paris Club members cannot be any more polarising than the hot issues that were present in the 1970s and 1980s. Much of the developed world was realising independence through armed struggle. For those who had experienced independence already, conflict and strife such as in the DRC, Cameroon, and Senegal, did not deter debt forgiveness.
This was regardless of some regimes scoring nothing on any democratic and human rights metrics, but breaking all scales of corruption and plunder. Though with painful memories of inhumane experiences, their people survived to witness a future because of debt forgiveness. Indeed, ideological conflicts premised on communist and capitalist convictions motivated actual warfare with casualties in the 1970s and 80s.
Tensions between Paris Club members and a number of Latin American regimes that were subsequently granted debt forgiveness were at one point appropriately described as vile. Notably, an appetite by many Latin American regimes for communism, which doesn’t recognise property rights altogether, did not hinder debt forgiveness for some.
What this speaks to is the extent at which humanity ultimately found influence on global debt relations that were underlined by more disconcerting disputes around Zimbabwe; not even land reform.
Of course, it would be insincere to downplay the residual resentment between Zimbabwe’s political establishment and western Paris Club members. Perhaps such pacification has actually contributed to the seemingly futile efforts to settle the underlying disparity between counterparties.
Regardless, there is nothing historically significant about the misalignment between Zimbabwe and global creditors today; at least not enough to warrant an impending humanitarian crisis that likely awaits Zimbabwe without debt forgiveness.
It is appropriate to place debt relations in their historical context at a moment where a future way of life is almost unimaginable for the entire human race. Not only do we have history to look back to and feel proud, but we have to always know that we can do better that we ever did before.
In his book, ‘Sapiens’, Yuval Harari mentions that a distinct trait that enabled human beings to survive and occupy our place in nature was the ability to communicate with each other expressing abstract ideas and beliefs; what isn’t there, or at least clear, in material.
Perhaps the discussions on structural and political reforms are irrelevant material at the moment. Maybe engagement, for citizens’ sake, should elevate the abstract of what makes debt forgiveness possible and pertinent. Institutions such as the IMF and World Bank have taken a lead to enhance humanity’s chances of re-imagining a prospective way of life; but will the world leave Zimbabwe behind?