Latest news with #sovereignDebt
The Guardian
10 hours ago
- Business
- The Guardian
The global south needs more than tinkering at a conference: debt forgiveness is the only fair way
It is 2025, and the architecture of economic power remains grossly tilted against the nations of the global south. Nowhere is this imbalance more acute – and more enduring – than in the debilitating impact of sovereign debt. From the vast countries of Africa to the scattered but strategically vital small island developing states (Sids) of the Caribbean and the Pacific, debt has become a modern form of bondage – the chains that restrict growth, sovereignty and the basic human dignity of nations struggling to define their own path to development. The statistics tell an alarming story. By the start of 2024 developing countries' public debt reached approximately $29tn (£21.2tn), rising from 16% of global debt in 2010 to nearly 30%. This escalation was fuelled by a convergence of a global pandemic and rising costs internationally. Today, average borrowing costs in Africa are almost 10 times higher than for the US. Why? International credit rating agencies will point at risk in Africa but this is perception, and a myth, not reality. Africa has consistently been the least risky continent for returns on the dollar when compared worldwide. But nevertheless, the impact is profoundly immoral as global south countries face prioritising debt servicing over essentials. One-third of these fragile countries have to allocate more to servicing interest – as much as 14% of domestic revenue – than to healthcare, education or climate resilience. For decades, these countries have been trapped in a cycle of borrowing to survive and repaying to remain 'credible' in the eyes of the international financial order. But the terms of this credibility have always been set elsewhere – primarily in western capitals, behind the closed doors of international financial institutions. These institutions, under the guise of technical neutrality, have in fact driven economic ideologies that have crippled the same countries they claim to help. As a young economics student in the 1980s, it was made clear to me that the true path was Thatcherism and Reaganomics, elevated to near-religious orthodoxy, both rooted in neoliberalism. Developing countries were told to liberalise, privatise and deregulate. Structural adjustment programmes (SAPs), driven by IMF and World Bank conditionalities, imposed austerity measures that gutted public services and sacrificed the welfare of millions on the altar of fiscal discipline. Healthcare systems collapsed. Schools were closed. Public sector wages were frozen and trade unions deemed to be evil. And yet, we were told to believe this was 'development'. In truth, this was not development but dependency. During the 1980s and 1990s, in Jamaica, Guyana and Trinidad and Tobago, these policies led not to prosperity but to deepening poverty, growing inequality and social unrest. In the Caribbean alone, SAPs contributed to lost decades of growth, political upheaval, and widespread disillusionment with the promise of independence. More than a few governments were ousted as a result of electoral backlash against IMF-imposed hardship. Foreign aid – so often touted as a benevolent solution – has played a double-edged role. Far from empowering states, it has often eroded their autonomy. Much of the aid has come with heavy strings attached: contracts that must go to western contractors; conditions that require the opening of markets before local industries are ready; and monitoring mechanisms that diminish sovereign decision-making. No wonder so many African leaders prefer the Chinese offers of lending. The result has been a facade of support, what the great activists Frantz Fanon or Kwame Ture, might have called a 'pitiful mimicry' of development – where countries are forced to pursue western-centric models of skyscrapers, luxury seafront resorts denying locals access to their beaches, and white elephant vanity projects destroying the environment, while their people continue to lack access to clean water, reliable electricity, or functioning hospitals. Development, at its core, should be about expanding the freedoms and capabilities of people. It should mean children can attend school without hunger. That mothers can give birth in safe conditions. That farmers can bring their goods to market on decent roads. That communities can trade, access clean water, and benefit from the natural resources of their lands without being poisoned by extraction. But the dominant model of development, dictated by external creditors and investors, has misconstrued these priorities. In its place, we see the proliferation of unsustainable debt-financed projects, many of which serve elite interests or foreign investors rather than local communities. Loans from the IMF and World Bank have frequently funded projects that do little to enhance long-term national resilience or productivity. And these loans, compounded by high interest rates and currency volatility, are serviced partially – through austerity and further borrowing – but rarely repaid. This is by design. Debt, in this system, is not a tool for development but a mechanism of control. Across the global south, the story is much the same. Multinational corporations, often operating with generous tax concessions and little oversight, engage in resource extraction that depletes environments and communities. They argue that their share of profits is justified by their investment in infrastructure and innovation. Yet these same companies contribute disproportionately to environmental degradation – through oil spills, deforestation, over-mining and pollution – without being fairly taxed or held accountable. One-sided trade agreements perpetuate this imbalance. The rules of global commerce, whether in mining, agriculture or tourism, are rigged in favour of the north. Risk assessments by international credit rating agencies, often influenced by outdated or racist perceptions, and opaque and biased criteria, further discourage equitable investment in the south. These assessments have more to do with where a country is located than with its actual economic potential or fiscal responsibility. Meanwhile, the brain drain continues. The brightest young minds of Africa, the Caribbean and the Pacific are drawn to wealthier countries in search of opportunity denied at home, leaving behind hollowed-out institutions and leadership vacuums. Local education systems produce excellence, only for it to be exported. The voices of our nations are also muted on the global stage. Despite holding the majority of the world's population, the global south holds a minority of voting power in institutions such as the UN. Decisions that affect our future are made without our meaningful participation but with token theatre. The UN holds its future of development financing conference in Seville, Spain, next week, it should be a moment for honest discussion on how the world can come together to support sustainable development, but already the US and the UK have blocked action on tackling the unfair burden of debt. When disasters strike – whether hurricanes, earthquakes, or the slow violence of the climate crisis – the burden of recovery falls overwhelmingly on us. The loss and damage fund, formally established at Cop27 in 2022 and only put into operation in 2024, has been long championed by vulnerable nations but still remains underfunded and under-prioritised. Yet for many Sids, the climate emergency is not a future threat – it is a catastrophe now. Shorelines are disappearing. Coral reefs are dying. Agriculture is failing. Lives are being lost. It is long past time for a reckoning. The economic architecture that dominates global development discourse has failed. It has failed the poor. It has failed the planet. And it has failed the very ideals of justice and solidarity upon which the post-second world war international system was supposedly built. We need more than tinkering at the margins. We need more than an extravagant conference in Seville can deliver. We need debt forgiveness – not as a charity, but as a historical rectification. We need concessional financing with reduced interest rates and transparent, fair assessments of investment risk. We need climate reparations through robust, predictable and progressive loss and damage funds. In times of force majeure, we need aid that empowers, not aid that entraps. Most of all, we need the freedom to define development on our own terms – rooted in equity, sustainability and sovereignty. Until these structural injustices are addressed, the global south may remain poor not because of a lack of potential or ambition, but because the rules of the game were never written for our success.
Arab News
7 days ago
- Business
- Arab News
An African credit rating agency? Easier said than done
Africa's sovereign debt crisis is not merely a story of fiscal mismanagement or external shocks. It is amplified by a systemic anomaly: The continent pays more to borrow than its peers with comparable economic indicators. This penalty, often termed the 'African premium,' costs the region an estimated $24 billion annually in excess interest payments, and has deprived it of more than $46 billion in potential lending. With 20 low-income African nations in or near debt distress, and 94 percent of rated African sovereigns downgraded over the past decade, the search for solutions appears to be culminating in the establishment of an African Credit Rating Agency, or AfCRA for short. For now, the move is being framed as both a corrective measure and a symbol of financial sovereignty. Yet while politically sound, it faces profound operational and philosophical challenges. Even if the ambition to establish the agency is framed as a bold act of sovereignty, the terrain it seeks to conquer is littered with the wreckage of similar aspirations in richer, better-equipped regions. Granted, the financial logic behind the move is well-established: Africa's sovereign debt is routinely mispriced, with subjective and often opaque assessments by the 'Big Three' credit rating agencies — Moody's, Fitch and S&P — inflating risk perception and pushing average borrowing costs ever higher. As a result, total annual lending losses and excess interest payments exceed annual official development aid to the continent. That Africa is being 'penalized' beyond its macroeconomic fundamentals is no longer a niche theory among a few experts, policymakers or scholars at poorly attended conferences, it is a measurable economic hemorrhage. But attempting to correct this through AfCRA introduces a dilemma. Can a continent hobbled by thin capital markets, erratic fiscal transparency, and a fragmented political economy build a ratings agency that would be perceived as credible by the very investors it seeks to court? The evidence so far is not encouraging. Europe, despite its institutional depth and capital abundance, has failed to create a viable alternative to the Big Three, even after sinking more than €300 million ($346 million) into various experiments, all of which ended in regulatory quagmires or strategic surrender. The most successful nonaligned agencies, such as Scope in Europe or Morningstar DBRS in Canada, only survived by serving niche markets and accepting that they could not displace the incumbents. Africa's task is even tougher. Most of the continent's 21 Eurobond issuers are repeat borrowers, yet their ratings have on average worsened since their inaugural issuances. This contradicts the usual pattern in emerging markets, where familiarity tends to reduce pricing premiums. Even the most prominent issuers — Egypt, Nigeria and South Africa — have faced frequent downgrades, often based on models that lack local granularity or fail to consider governance heterogeneity. Furthermore, agencies frequently do not send analysts to the countries they rate; Fitch has no office at all on the continent, and both S&P and Moody's operate out of a single office in Johannesburg, covering dozens of vastly different economies. Meanwhile, unsolicited ratings, those issued without government request or input, are both more common in Africa and more damaging. Moody's leads the way in such unsolicited assessments, despite objections by African governments to their inherent opacity. It is not surprising, therefore, to see a resurgent push for an independent agency, given the cost of delays. Between 2021 and 2024, for instance, the average coupon on African Eurobonds nearly doubled to just under 11 percent, even as fundamentals remained stable. The continent pays more to borrow than its peers with comparable economic indicators. Hafed Al-Ghwell Moreover, the absence of localized assessment left 22 African countries unrated, starving them of institutional capital. When Botswana and Mauritius secured investment-grade ratings, they accessed financing at 300-400 basis points below regional peers. At a continental level, each one-notch upgrade in a rating could unlock more than $15 billion in much-needed capital. The cost of waiting is clear and unambiguous. Yet, the creation of AfCRA cannot be reduced to a matter of injustice alone. The economics of operating a credit rating agency are ruthless. Even the most optimistic forecasts suggest that the launch of a credible African agency would require $400–500 million in capital, an amount that dwarfs the annual budget of the African Union itself. A very familiar, and suffocating, dependency loop swiftly kicks in; the AU's own programs remain more than 60 percent funded by the EU and other external partners, and if these same entities are now expected to bankroll an 'African-owned' ratings apparatus, the concept begins to cannibalize its own purpose. Beyond the matter of funding, AfCRA would also find itself confronted by the same structural hurdles that felled its European predecessors. Regulatory legitimacy, for one thing, cannot be assumed. In many global markets only ratings from the Big Three are recognized, particularly among institutional investors bound by prudent regulation. Even with improvements in rating models, the acceptance of new agencies into the portfolios of pension funds or sovereign wealth funds hinges on an arduous and opaque process of validation by regulators located far outside Africa. Without international regulatory recognition, AfCRA risks becoming an advisory service masquerading as an agency; technically useful but irrelevant where it matters. Even if credibility can somehow be established, the pipeline of rating activity might not justify the operating costs. Government debt issuance in Africa remains sporadic and constrained. Moreover, much of the domestic debt, particularly in Francophone Africa, is already absorbed by regional banks under arrangements that do not require third-party ratings. Corporate appetite for ratings is growing but still shallow. GCR Ratings, once Africa's most promising homegrown agency, did not consider government bond ratings a serious business line, and it has since been acquired by Moody's, effectively reversing the localization effort. And then there is the governance risk. Africa's existing national and regional agencies have not been free from scandal. Recent cases, such as West African agency DataPro's withdrawal from a local firm because of a fraudulent rating that was exposed by a US research organization, highlight the fact that domestic proximity does not immunize against error or, worse, complicity. Creating an agency without a ferociously independent mandate, transparent methodology, and hard, legal accountability would not reduce bias, it would simply substitute one form of distortion for another. Ultimately, the issue is not whether Africa deserves better ratings; it certainly does. However, establishing an agency without first fixing the deficits in data integrity, fiscal reporting, macroeconomic coherence, and regulatory independence might produce only a costly mirror image of the very system it seeks to escape. A credible alternative cannot be built on grievance alone, but it could be a catalyst for data reform, methodological innovation, and investor dialogue, which might finally ensure that finance costs reflect Africa's true risk and not perceived ghosts from the past. However, such an undertaking must emerge as a result of discipline, innovation and, above all, proof of its usefulness to markets. Otherwise, AfCRA runs the risk of being filed away in the continent's growing archive of initiatives that were politically resonant but financially futile.
Bloomberg
18-06-2025
- Business
- Bloomberg
A 200%-Plus Bond Rally Sours as Lebanon's Reform Story Stalls
Emerging-market bond investors' most profitable bet of the past year is now handing them double-digit losses — as Lebanon's stalled banking reforms sink its sovereign debt. The defaulted dollar bonds of the Lebanese government had returned 229% between late September and early March, beating 67 other countries in a Bloomberg index for the asset class. The gains were sparked by a breakthrough in the country's politics, with a functional government formed for the first time in more than two years and reform-friendly leaders appointed to key posts.
Bloomberg
17-06-2025
- Business
- Bloomberg
IMF Met With Emerging-Market Creditors on Debt Rework Strategies
A group of International Monetary Fund officials met private creditors last week in London, as part of the multilateral lender's work to publish a new report on sovereign debt restructurings in emerging markets, according to people familiar with the matter. IMF staff members met on June 9 with some bondholders from hedge funds and other asset managers to seek the private creditors' input on sovereign debt restructurings from 2020 onwards, the people said, asking not to be named because the meeting was private.
Reuters
04-06-2025
- Business
- Reuters
Brazil sells $2.75 billion in second dollar bond deal of 2025 as CDS hits year low
BRASILIA, June 4 (Reuters) - Brazil sold $2.75 billion in dollar-denominated sovereign bonds on Wednesday, the treasury said, marking its second international issuance this year as the country capitalizes on declining default risk. The government sold $1.5 billion through a new five-year bond maturing in 2030, with a yield of 5.68%, and an additional $1.25 billion through a reopening of its 10-year benchmark Global 2035 bond, with a 6.73% yield. The deal comes amid a recent decline in Brazil's five-year credit default swap (CDS) , a key gauge of sovereign risk used by investors to hedge against default. After rising earlier this year, Brazil's CDS has retreated to its lowest level of 2025, down 27.6% year-to-date as of Tuesday. Brazil's dollar bond sale follows the $2.5 billion 10-year sovereign bond placed in February, which was the issuance reopened on Wednesday. The treasury said in a statement that the demand for the new issuance surpassed the issued volume by about four times. Reuters had reported earlier in the day, citing a source, that Brazil was poised to sell $2.75 billion with the bond sale. Emerging markets have broadly benefited from a global rotation of capital driven in part by trade policy shifts, including steep tariff hikes introduced by U.S. President Donald Trump - a trend that has contributed to the weakening of the U.S. dollar globally. On the domestic front, investors are in a wait-and-see mode ahead of structural fiscal measures the government signaled are being negotiated with Congress, after a controversial hike in taxes on some financial transactions aimed at boosting public revenues was poorly received. The new external issuance aims to boost liquidity in Brazil's sovereign dollar yield curve, provide pricing references for corporate issuers and raise funds to pre-finance upcoming external debt maturities, the treasury said. BNP Paribas, Citigroup and Santander led the transaction.
