Africa expert panel proposes a new G20 debt refinancing initiative

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By Duncan Miriri and Colleen Goko

JOHANNESBURG (Reuters) -The Group of 20 major economies should team up with the International Monetary Fund and others to launch a new debt refinancing plan for low-income countries hit by heavy debt repayments, a panel of Africa experts said on Tuesday.

“This proposal would focus on refinancing rather than rescheduling debt obligations,” the panel said in a report released in Johannesburg on Tuesday ahead of the G20 summit in South Africa this weekend.

The expert group, including a former South African finance minister and a former Kenyan central banker, said many countries now need immediate debt relief.

The mechanism could be implemented through the creation of a special fund, or the use of debt swaps that would use more affordable financing to buy back countries’ most expensive debt.

TAP SPECIAL DRAWING RIGHTS AND IMF’S GOLD

Funding could come from the use of special drawing rights at the IMF, the panel said, or the sale of the IMF’s gold, if G20 shareholders in the Washington-based Fund offer their support.

The African Union is also pushing for the creation of a debt refinancing mechanism but it is not yet clear if and when the facility will start operations.

South Africa set up the expert panel in March to examine what needs to be done to help heavily-indebted nations, especially in Africa.

During its G20 presidency, South Africa has tried to keep critical issues for poor countries like debt and climate change on the agenda, but it has faced stiff resistance from the U.S., which has said it will not be attending the summit.

FORMATION OF A BORROWERS’ CLUB

Debtor nations should also form a borrowers’ club, the panel said, to boost collective advocacy in global finance.

“Its primary mandate would be to strengthen debtors’ voices in negotiations on reforms to the international financial and debt architecture,” it said.

Africa should also partner with the G20 to recommend changes to the IMF to “effectively perform its role in the global financial system, with a particular focus on Africa.”

Over time, the G20 and other parties should revamp sovereign debt resolution mechanisms.

The G20 launched its ‘Common Framework’ initiative in the wake of the COVID pandemic in 2020 to speed up debt restructurings but has seen early test cases in the likes of Ghana and Zambia take years to make progress.

Renewed debt concerns for countries like Senegal and Mozambique have put the issue back in the spotlight in recent months.

A new framework should better differentiate between liquidity and solvency issues, the panel said, and consider all forms of domestic and external debt.

“Sovereign debt has once again emerged as a critical obstacle to development in Africa,” the panel said.

(Reporting by Duncan Miriri in Nairobi and Colleen Goko in Johannesburg; Editing by Marc Jones and Alexandra Hudson)