CIGI PAPERS

NO. 43 SEPTEMBER 2014

AFRICAN PERSPECTIVES ON
SOVEREIGN DEBT RESTRUCTURING
SKYLAR BROOKS, DOMENICO LOMBARDI AND EZRA SURUMA

AFRICAN PERSPECTIVES ON
SOVEREIGN DEBT RESTRUCTURING
Skylar Brooks, Domenico Lombardi and Ezra Suruma

Copyright 2014 by the Centre for International Governance Innovation

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TABLE OF CONTENTS
VI About the Authors
VI Acronyms
1

Executive Summary

1 Introduction
2

A Brief History of Sovereign Debt Restructuring in Africa

3

The Paris Club

The Multilaterals and the HIPC Initiative and MDRI

Post-HIPC Developments

The Demand Side of Sovereign Borrowing in Africa

The (Changing) Supply Side of Sovereign Debt in Africa

5

The New Bilateral Official Creditors

Implications for Sovereign Debt Restructuring

International Capital Markets

Governing Sovereign Debt in Africa: Clear Problems, Cloudy Solutions

Concluding Remarks

Works Cited

11 Appendix: Conference Agenda

15 About CIGI
15 CIGI Masthead

CIGI Papers no. 43 September 2014

ACRONYMS
ABOUT THE AUTHORS

Skylar Brooks is a research associate in CIGIs

Global Economy Program.

Domenico Lombardi is director of CIGIs Global

Economy Program, overseeing the research
direction of the program and related activities, a
member of the Financial Times Forum of Economists
and editor of the World Economics Journal.

Ezra Suruma is a senior adviser to the president of

Uganda and chairman of Uganda Debt Network.
He is a former finance minister of Uganda and
distinguished visiting fellow at the Brookings
Institution. He is also the author of a new book,
Advancing the Ugandan Economy: A Personal
Account (Brookings Institution 2014).

VI CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATION

AfDB

African Development Bank

AFRODAD

African Forum and Network on Debt

and Development

CACs

collective action clauses

HIPC

heavily indebted poor countries

IMF

International Monetary Fund

MDRI

Multilateral Debt Relief Initiative

MEFMI

Macroeconomic and Financial

Management Institute of Eastern and
Southern Africa

NDP

National Development Plan

OECD

Organisation for Economic Co-operation

and Development

PEAP

Poverty Eradication Action Plan

PRSP

Poverty Reduction Strategy Paper

PV

present value

SDRM

sovereign debt restructuring mechanism

SSA

Sub-Saharan Africa

AFRICAN PERSPECTIVES ON SOVEREIGN DEBT RESTRUCTURING

EXECUTIVE SUMMARY

INTRODUCTION

On August 7 and 8, 2014, CIGIs Global Economy

Program co-hosted a conference with Uganda Debt
Network to discuss African perspectives on sovereign
debt restructuring. The proceedings, opened by the
vice president of Uganda, took place in Kampala, and
featured several distinguished participants including
current and former finance ministers and central
bank governors, academics and practitioners, and
civil society representatives from Uganda, Liberia,
Cameroon, Ghana, Nigeria, Zambia and Zimbabwe.
Participants also came from civil society organizations
and intergovernmental institutions representing broader
groups of African countries or the continent as a whole.

African countries have considerable experience with

sovereign debt restructuring. Since the early 1980s, there
have been a total of 317 sovereign debt restructurings in
Africa far more than in any other continent or region
(Das, Papaioannou and Trebesch 2012). And yet African
perspectives on debt restructuring have been largely
absent from the ongoing sovereign debt debate. Drawing
on a series of papers and presentations commissioned for
a recent conference, this paper highlights the views and
concerns of several African debt experts in an effort to learn
from the continents extensive and evolving experience
with sovereign debt management and restructuring.

Since the early 1980s, there have been a total of 317

sovereign debt restructurings in Africa, yet African
perspectives have not featured prominently in the ongoing
sovereign debt debate. The conference thus aimed to learn
from African countries extensive and evolving experience
with sovereign debt management and restructuring.
Traditionally, African countries have borrowed mostly
from multilateral lenders and high-income bilateral
creditors belonging to the Paris Club an informal group
of high-income creditor countries. Consequently, when
African countries have restructured their debts, they have
done so through the Paris Club and through specific debt
relief initiatives set up by their multilateral creditors. More
recently, however, the composition of Africas creditors
has been changing, as more countries turn to international
capital markets and new bilateral creditors principally
China and other emerging market governments for
their borrowing needs.
Among other things, this shift implies that the creditorspecific mechanisms used to facilitate past debt
restructurings in Africa are fading in relevance and will be
of diminished utility in the event of future debt difficulties.
What is worse, severe debt distress is not a distant prospect
for a number of African countries, which have been
accumulating external debt at an unsustainable pace and
remain highly susceptible to changes in external financial
and economic conditions.
Conference participants expressed unanimous concern
over the recent and sharp rise in government debt
throughout the continent, as well as the lack of a satisfactory
international framework to help restructure such debt if it
becomes unsustainable. In light of these challenges, they
also provided suggestions on the type of international
framework needed to reduce the costs of sovereign debt
workouts.

Traditionally, African countries have borrowed mostly

from multilateral lenders namely, the International
Monetary Fund (IMF), the World Bank and the African
Development Bank (AfDB) and high-income bilateral
creditors belonging to the Paris Club. Consequently, when
African countries have restructured their debts, they have
done so through the Paris Club and through specific debt
relief initiatives such as the Heavily Indebted Poor
Countries (HIPC) Initiative and the Multilateral Debt
Relief Initiative (MDRI) set up by their multilateral
creditors. More recently, however, the composition of
Africas creditors has been changing, as more countries
turn to international capital markets and new bilateral
creditors namely China and other emerging market
governments for their borrowing needs.
Among other things, this shift implies that the creditorspecific mechanisms used to facilitate past debt
restructurings in Africa the Paris Club, the HIPC
Initiative and the MDRI, and, to a lesser extent, the London
Club are fading in relevance and will be of diminished
utility in the event of future debt difficulties. What is worse,
severe debt distress is not a distant prospect for a number
of African countries, which have been accumulating
external debt at an unsustainable pace and remain highly
susceptible to changes in external financial and economic
conditions.
On August 7 and 8, 2014, CIGIs Global Economy
Program co-hosted a conference1 with Uganda Debt
Network to discuss African perspectives on sovereign
debt restructuring. The proceedings, opened by the
vice president of Uganda, took place in Kampala, and
featured several distinguished participants including
current and former finance ministers and central
bank governors, academics and practitioners, and
civil society representatives from Uganda, Liberia,

1 For the full conference agenda see the appendix. We are grateful to
the many people who helped make the conference happen. In particular,
we would like to acknowledge Suzanne Cherry, who took the lead for
CIGI in organizing the conference and whose hard work and dedication
were instrumental to making it a success.

Skylar Brooks, Domenico Lombardi and Ezra Suruma 1

CIGI Papers no. 43 September 2014

Cameroon, Ghana, Nigeria, Zambia and Zimbabwe.
Participants also came from civil society organizations
and intergovernmental institutions representing broader
groups of African countries or the continent as a whole.2
Conference participants prepared papers and presentations
on various topics related to sovereign debt governance,
including Africas past experience with sovereign debt
restructuring, its stake in sovereign debt governance going
forward and the desirability of reforming the international
sovereign debt architecture. The aim of this paper is to
distill the main insights from these timely and important
contributions. Africas extensive experience with sovereign
debt restructuring, as well as the changing nature of
its international debt relations, make the perspectives
contained in this paper valuable contributions to the
ongoing debate over how best to govern sovereign debt
at the international level. The paper also sheds light on
the interests and concerns of African leaders regarding
sovereign debt an issue that is particularly critical to
Africas development prospects.
The next section of the paper will provide a brief history
of sovereign debt restructuring in Africa, with a particular
focus on Paris Club restructurings and the debt relief
offered under the HIPC Initiative and MDRI. Sections
three and four will examine the changing supply and
demand sides, respectively, of sovereign debt in Africa.
Here, the focus is on African countries high demand for
external borrowing and their growing tendency to turn
toward international capital markets and new bilateral
creditors to meet that demand. The opportunities and risks
associated with the shift toward new sources of credit are
also briefly considered. The fifth section explores African
perspectives on why and how the international sovereign
debt architecture should be reformed, and the final section
offers concluding remarks.

A BRIEF HISTORY OF SOVEREIGN

DEBT RESTRUCTURING IN AFRICA
African countries have ample experience accumulating
and restructuring sovereign debt for many reasons.
First, the vast development needs of Sub-Saharan Africa
(SSA) necessitate heavy borrowing from external sources;
domestic resources are simply insufficient to meet those
needs. On the supply side, various global economic
and political developments drive lending to the region,

2 Examples include the Macroeconomic and Financial Management

Institute of Eastern and Southern Africa a regional institute with 13
member countries and the African Forum and Network on Debt and
Development (AFRODAD) an Africa-wide civil society organization.

2 CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATION

sometimes under difficult or dubious conditions.3 At the

same time, weak institutional frameworks for managing
public finances, maintaining accountability and reining
in corruption at the domestic level have led to the gross
mismanagement of sovereign debt by many African
governments. In Uganda, for example, between 1986 and
2006, virtually every ministry and government agency
could borrow on behalf of the country a situation
not unlike many other countries in the region, which
either have or have had very anemic legal and regulatory
systems to govern external borrowing (Bategeka, Kiiza
and Suruma 2014, 7).
For a combination of these reasons, African countries built
up very large, and ultimately unsustainable, sovereign
debt positions between the mid-1970s and late 1990s
(Nafziger 1993; Elbadawi, Ndulu and Ndungu 1997).
For SSA countries, the average stock of external public
debt to GDP rose from less than 50 percent in the 1970s
to more than 250percent in the 1990s (Boote and Thugge
1997). According to IMF estimates, the overall debt of
HIPCs tripled from $60 billion in 1980 to $190 billion
in 1995 (Abrego and Ross 2001).4 At the same time,
HIPCs experienced a significant deterioration in export
performance, as their share of world trade declined from
2.2 percent in 1970 to 0.7 percent in 1997 (ibid.). For several
African countries, the revenue stream from which they
drew on to service their rapidly accumulating external
public debts all but dried up.
When their public debt burdens became unbearable,
these countries sought relief through sovereign debt
restructuring. Most of the outstanding debt was owed
to multilateral institutions namely, the IMF, World
Bank and AfDB and bilateral lenders that belonged
to the Paris Club. As such, debt restructuring took place
predominately through these multilateral and bilateral
channels. African governments also restructured debts
owed to private foreign creditors through debt swaps and
buybacks, and through the so-called London Club an
informal group of commercial banks. The proportion of
this privately held debt, however, was usually smaller than
that owed to multilateral and bilateral official creditors.
Debt rescheduling through the Paris Club and, to a
lesser extent, the London Club was the most common
form of debt relief given to African countries during the
3 Since their independence, many African countries have received
loans for outright political or security-related reasons rather than for
simple financial return. Even some of those seeking financial return
have lent to the region in a reckless and predatory way. In both cases,
lenders have not made a careful or honest assessment of the borrowers
ability to repay and, thus, bear some responsibility for the borrowers
indebtedness and eventual inability to service debt. Loans have also
been made conditional on economic reforms, some of which have been
misguided and have not improved the recipients economic situation and
ability to repay debt.
4

All figures in the paper are in US dollars.

AFRICAN PERSPECTIVES ON SOVEREIGN DEBT RESTRUCTURING

1970s and 1980s. For the most part, however, it failed to
comprehensively address the underlying debt situation
in many low-income countries. It was not until the IMF
and World Bank launched the HIPC Initiative in 1996,
supplemented by the MDRI in 2006, that SSA countries
were granted sufficiently deep debt relief to restore the
sustainability of their sovereign debt positions.

THE PARIS CLUB

Traditionally, the Paris Club has been an important
venue for African countries to restructure sovereign debt
owed to bilateral official creditors. A number of SSA
countries Liberia, Uganda, Tanzania, Cte dIvoire,
Mozambique, Zambia, Cameroon, Senegal and others
have restructured debts with the Paris Club more than
once (Paris Club 2014). Uganda, for example, received its
first Paris Club treatment in 1981, and negotiated multiple
rounds of debt relief including both rescheduling and
write-offs in the decade and a half after that (Bategeka,
Kiiza and Suruma 2014).
Until 1988, Paris Club restructurings largely took the
form of cash flow relief through debt rescheduling (Paris
Club 2014). From that point onward, however, it became
increasingly clear that the mounting debt burdens of lowincome countries reflected underlying solvency problems
that, to resolve, required not just a rescheduling of debt
payments, but rather a significant reduction in the debt
stock itself. In October 1988, the Paris Club began offering
relief through actual debt reduction, starting with the
Toronto Terms, which allowed for a 33 percent reduction in
the total amount of public debt a given country owed the
club (Otieno 2014). The level of debt reduction including
on commercial claims purchased by Paris Club members
was gradually increased from the Toronto Terms in 1988
to the London Terms in 1991 (50 percent reduction), Naples
Terms in 1995 (50 to 67 percent reduction), Lyon Terms in
1996 (80 percent reduction) and Cologne Terms in 1999
(90 percent reduction) (Abrego and Ross 2001; Paris Club
2014).5 Between 1989 and 2006, the Paris Club met with
Cameroon seven times and rescheduled or cancelled over
$12 billion of its sovereign debt (Paris Club 2014; Thierry
2014). Several other African countries have benefitted from
multiple trips to the Paris Club.
Paris Club treatments are conditional on a countrys
participation in an appropriate IMF program (IMF 2014a).
The program is intended, first, to demonstrate the countrys
inability to meet its external debt obligations and thus the
need for a new payment arrangement with its creditors
and, second, to introduce policy reforms that restore
sound macroeconomic fundamentals, thus lowering the
probability of future financial difficulties and debt defaults
(Mutazu 2014). The Paris Club has therefore had to work

closely with the IMF and World Bank, especially during

the HIPC Initiative.

THE MULTILATERALS AND THE HIPC INITIATIVE

AND MDRI
During the 1990s, there was increasing recognition among
governments, international organizations and NGOs
around the world that, despite previous bilateral debt
relief efforts, the external debts of many low-income
countries were too high to service and were impeding
their ability to pursue meaningful economic development
and poverty reduction (Kiawu et al. 2014). In 1996, against
this backdrop, the IMF and World Bank themselves the
largest creditors of most low-income countries launched
the HIPC Initiative with the aim of ensuring that no
poor country faces a debt burden it cannot manage (IMF
2014b).
To qualify for debt relief under the HIPC Initiative,
countries were required to undertake economic and
structural reforms and prepare a Poverty Reduction
Strategy Paper (PRSP) outlining planned poverty
alleviation programs, which were to be funded by the
money that would have otherwise been used to service
debt (IMF 2014b; Bategeka, Kiiza and Suruma 2014). Under
this first phase of the HIPC process called the decision
point the IMF and World Bank provided interim debt
relief. Once a country had demonstrated a track record of
good performance, implemented the agreed upon reforms
and had its PRSP in place for at least a year, the IMF and
World Bank provided more substantial relief in the form
of debt writeoffs (Kiawu et al. 2014). This second and
final phase of the process is referred to as the completion
point.
While the HIPC Initiative was a strong step in the right
direction, by the mid-2000s it had become clear that lowincome countries required greater levels of debt relief.
In June 2005, the Group of Eight proposed the MDRI,
under which three multilateral institutions the IMF,
the International Development Association of the World
Bank and the African Development Fund would agree
to cancel 100 percent of their debt claims on countries
that successfully passed through the full HIPC Initiative
process. Launched in 2006, the MDRI was intended to help
low-income countries advance toward the United Nations
Millennium Development Goals (IMF 2014c).

5 The Cologne Terms specified a 90 percent debt reduction, or more if

needed under the HIPC Initiative.

Skylar Brooks, Domenico Lombardi and Ezra Suruma 3

CIGI Papers no. 43 September 2014

Table 1: Debt Indicators of the 36 Post-Decision Point HIPCs
1999

2011

PV of debt-to-exports

457%

80%

PV of debt-to-GDP

114%

19%

Debt service-to-exports

18%

3%

PV of debt-to-revenue

552%

110%

Debt service-to-revenue

22%

5%

Source: World Bank 2012.

Note: Data are simple averages.

To date, debt relief packages under the HIPC Initiative and

MDRI have been approved for 36 countries, 30 of them in
Africa, providing around $115 billion in debt relief since
1996 (IMF 2013a). Despite the humiliating, if not harmful,
stigma attached to being labelled an HIPC, these initiatives
were broadly beneficial to the countries that received debt
relief. As the IMF (2013a, 1) reports, Debt relief under
the Initiatives has substantially alleviated debt burdens in
recipient countries and has enabled them to increase their
poverty-reducing expenditures by almost three and a half
percentage points of GDP between 2001 and 2012. In a
comprehensive cost-benefit analysis of the initiatives, the
Macroeconomic and Financial Management Institute of
Eastern and Southern Africa (MEFMI) (2010, 52) concludes
that the benefits of [this] debt relief far outweigh the
costs. Among these benefits are irrevocable debt relief,
reduced debt service payments, increased expenditure
toward poverty reduction, improved standards of
living, rejuvenation of economic activity, a more stable
macroeconomic environment, and an improved investment
climate (MEFMI 2010). As many conference participants
with first-hand experience stressed, however, the HIPC
Initiative and MDRI were one-off initiatives that will not
be available for future use.

POST-HIPC DEVELOPMENTS
The HIPC Initiative and MDRI sharply reduced the
external debt burdens of beneficiary countries. Table 1
shows the dramatic improvement in the debt indicators of
the 36 post decision point countries between 1999 and
2011. As a result of these initiatives, the average present
value (PV) of debt-to-GDP, for example, declined from
114 percent in 1999 to 19 percent in 2011 (World Bank
2012). After the MDRI, the total public debt stock of 36
post-HIPC countries stood at just $12 billion, compared to
$117 billion prior to HIPC Initiative and MDRI debt relief
(ibid.).6
The post-HIPC era has been characterized by robust
economic growth and strong investment rates (Bayraktar
and Fofack 2011; Kasekende, Brixova and Ndikumana
2010). Economic growth rates across post-HIPC countries
6

These figures are measured in end-2011 PV terms.

4 CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATION

have averaged five percent over the past decade (Bayraktar

and Fofack 2011). Despite the worldwide economic
slowdown brought on by the 2008 global financial crisis,
most of these countries have managed to maintain positive
growth rates (IMF 2009).
Importantly, the sharp decline in public debt created
much greater fiscal space for SSA governments, which
allowed them to increase social expenditures and capital
investments. But greater fiscal space, coupled with
strong growth, also opened up room for a new round of
aggressive borrowing (Otieno 2014, 2). As a result, public
debt levels across the region are again rapidly rising and, in
some countries, have surpassed their pre-HIPC highpoints
(ibid. 2014).7 The IMF reports that sovereign debt levels in
Africa are set to hit a 10-year high in 2014 (Blas 2014).
In the majority of post-HIPC African countries, external
public debt is growing both in nominal terms and as
a percentage of GDP (Otieno 2014). Despite positive
growth rates, debt dynamics in several post-HIPC African
countries raise concerns about short- to medium-term debt
sustainability in the region. In 2013, the IMF reviewed
the debt sustainability of 76 low-income countries and
concluded that a number of them face moderate to
high risk of renewed debt distress (IMF 2013b). In fact,
around half of the countries that benefitted from debt
relief under the HIPC initiative/MDRI process were
deemed to be at high risk for, or already in, debt distress
(ibid.). Unsurprisingly, conference participants expressed
unanimous concern over the recent and sharp rise in
government debt throughout the continent, the prospect
of another widespread sovereign debt crisis in Africa and
the lack of a satisfactory international framework to help
restructure unsustainable debt and resolve sovereign debt
crises.

7 Raphael Otieno is director of the Debt Management Programme at

MEFMI. MEFMI has access to the financial data of its 13 member countries:
Angola, Botswana, Kenya, Lesotho, Malawi, Mozambique, Namibia,
Rwanda, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.

AFRICAN PERSPECTIVES ON SOVEREIGN DEBT RESTRUCTURING

THE DEMAND SIDE OF SOVEREIGN

BORROWING IN AFRICA
African countries demand for external credit is driven
overwhelmingly by their vast, and ever-changing,
development needs. Since domestic resources are far
too paltry to meet these needs, development must be
financed primarily through external debt. However, while
demand for external credit remains strong, the traditional
sources of supply are proving insufficient or difficult to
access. Concessional lending from the IMF and World
Bank, confirmed conference participants, is simply not
voluminous enough to fund many of the big infrastructure
projects that are needed. Concessional loans are also
sometimes difficult to access because they are in such high
demand amongst eligible borrowers. As one Liberian debt
expert noted, countries that remain under the purview of
an IMF program are also subject to strict borrowing limits,
making it very hard for them to finance expensive, but
desperately needed, development projects (Kiawu et al.
2014).
African countries also face new challenges in borrowing
from their traditional bilateral official creditors. Take the
case of Uganda. During the late 1990s and early to mid2000s, Ugandas development priorities were guided
by its Poverty Eradication Action Plan (PEAP), which
fit nicely with the rules that govern the Organisation for
Economic Co-operation and Developments (OECDs)
lending. Uganda was thus a darling in the eyes of its main
development partners, all of whom were OECD members.
In 2008, however, Uganda replaced the PEAP with a new
National Development Plan (NDP), which was revised
in 2013. While previous goals such as social spending
remain important, the NDP focuses more on employmentgenerating growth, major aspects of which such as
infrastructure development fall outside of the funding
guidelines of the OECD. Hence, Ugandas access to finance
from its traditional bilateral creditors has been largely cut
off (Bategeka, Kiiza and Suruma 2014).
Following Ugandas discovery of oil deposits, for example,
hardly any of Ugandas traditional development partners
showed willingness to fund the oil sector. Yet, according to
current and former Ugandan officials who participated in
the conference, the country is seeking to use its oil revenues
to drive its economic development going forward (ibid.).
Although Ugandas development strategy has been
altered in response to changing conditions, its demand for
external funding remains as strong as ever. Unfortunately,
the countrys traditional multilateral and bilateral official
creditors have, so far, failed to respond to its vast and
changing development needs. Conference participants
confirmed that a similar, sometimes more desperate, story
applies to many other SSA countries. This failure is not
without broad consequences though. To paraphrase one

conference participant: if the multilateral institutions and

their Western shareholders are unwilling or unable to
respond to the changing needs of Africa, then Africa will
turn to new international lenders public and private
who are proving better able to meet the broad development
needs of the continent. And that is exactly what many
African countries are doing.

THE (CHANGING) SUPPLY SIDE OF

SOVEREIGN DEBT IN AFRICA
As mentioned above, Africas traditional external creditors
have in many ways not been able to provide the scale or
type of financing that the continent desperately requires.
In other words, the supply of credit has been too small
or inflexible to meet demand. To fill this widening gap
in the development marketplace, African countries are
increasingly turning to new, non-Paris Club creditor
countries namely, China and other emerging powers
as well as international capital markets for their vast
borrowing needs. While the changing composition
of Africas debt structure presents new development
opportunities, it also poses risks and challenges vis--vis
debt sustainability and the governance of future sovereign
debt crises.

THE NEW BILATERAL OFFICIAL CREDITORS

In the span of less than a decade, China has become the
single most important creditor country in Africa. China
is now the largest bilateral official creditor of many
countries that it scarcely lent to just 10 years ago. For
example, between 2005 and 2013, Chinas proportion of
total outstanding sovereign debt holdings went from one
percent to eight percent in Kenya, from zero percent to
eight percent in Uganda, from one percent to 10 percent in
Zimbabwe, and from zero percent to 17 percent in Malawi
(MEFMI 2014). The dramatic relative increase in Chinas
lending activities has in turn been accompanied by a
relative decline in the importance of Paris Club creditors.
Paris Club lending accounted for 10 percent of Malawis
total sovereign debt profile in 2005, but by 2013 had fallen
to a mere one percent. In Uganda, Paris Club lending
represented seven percent of outstanding debt in 2005 but
only two percent in 2013, and in Zambia the change has
been even starker: 15 percent in 2005 compared to three
percent in 2013 (ibid.). In Uganda, in place of the OECD/
Paris Club countries, China has stepped in to finance
and help construct several large infrastructure projects,
such as the construction of hydroelectric dams, paved
roadways, railway systems and more (Bategeka, Kiiza and
Suruma 2014).
While conference participants noted the opportunities
associated with Chinas unmatched capacity to finance
large-scale infrastructure projects, as well as the advantages
of diversifying their sovereign debt portfolios, they were

Skylar Brooks, Domenico Lombardi and Ezra Suruma 5

CIGI Papers no. 43 September 2014

also cognizant of the risks of such new borrowing. These
risks include new forms of dependency and external
political influence, the potential exploitation of domestic
natural resources by outside actors, and the familiar
dangers of over-borrowing. Beyond these opportunities
and risks, the changing composition of Africas creditors
also presents new challenges to the effective governance of
future sovereign debt restructurings.

IMPLICATIONS FOR SOVEREIGN DEBT

RESTRUCTURING
For many years, the Paris Club was the premier forum
through which African countries restructured their
sovereign debt. But as the composition of Africas official
bilateral creditors increasingly shifts from Western
governments to new, non-Paris Club countries, the
relevance of this forum fades as does the relevance of the
broader debt-restructuring regime of which it is a part. This
raises important questions about the mechanisms that will
be used to resolve future defaults and debt restructurings
on the continent. Can the governance gap left by the
Paris Clubs retreat be filled with a new arrangement or
mechanism to facilitate sovereign debt restructurings? If
not, what are the implications? If so, what might such an
arrangement look like?
The Paris Clubs relevance can be restored, of course,
if the new bilateral creditors are allowed and decide
to join. In October 2013, Paris Club officials met with
representatives from emerging creditor countries in an
effort to begin to harmonize approaches to lending and
restructuring. In addition to the 19 Paris Club members,
the meeting included China, India, Mexico, Turkey and
Arab Gulf countries (Weiss 2013). This suggests that the
clubs membership could be widened, or that its rules and
principles could serve as a useful template for resolving
future sovereign debt crises.
The prospect of considerable dissonance between the
Paris Club and emerging market creditors should not be
ruled out, however. Clearly, emerging powers have at least
some desire to build their own international institutions to
supplement or compete with existing ones. This has been
demonstrated by the recent establishment of the New
Development Bank, operated by the BRICS (Brazil, Russia,
India, China and South Africa) countries. In fact, BRICS
countries may choose to use their new development bank
as an institutional venue for restructuring the debts of
their borrowers should they become unsustainable.
Even if the Paris Club is reformed or replaced by a more
relevant mechanism, there remains good reason to worry
about the prospect of uncoordinated, protracted and
ultimately costly sovereign debt restructurings on the
African continent. The lack of a contemporary framework
for restructuring debt owed to the multilaterals is one
worry; another is the absence of adequate rules and
6 CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATION

procedures for restructuring privately held sovereign

bonds an increasingly compelling reason in light of
current trends.

INTERNATIONAL CAPITAL MARKETS

Along with new bilateral creditors, African countries
are increasingly turning to international capital markets
to fill their demand for borrowing. Since 2006, several
SSA countries including Seychelles, Ghana, Gabon,
Namibia, Zambia, Senegal, Cte dIvoire, Nigeria, Kenya,
Rwanda, Zambia and the Republic of Congo have issued
Eurobonds on international markets. Several others are
looking to raise money in the same way. In 2013, African
countries raised over $8.1 billion from bond issuances,
dwarfing the $1.2 billion they raised from such issuances
a decade ago (Blas 2013). In June 2014, Kenya successfully
raised $1.5 billion on markets, and in July Cte dIvoire
raised $750 million. Ghana has voiced its intention to
issue a $1.5 billion Eurobond later this year, and Zambia
recently raised $1 billion through the sale of 10-year dollardenominated bonds to finance its swelling budget deficit
(Mutazu 2014; World Bank 2014).
Considering how quickly it has occurred, this shift toward
market financing is remarkable. In 2005, none of the
countries mentioned above had issued any international
bonds. By 2013, such bonds made up 21 percent of Zambias,
27 percent of Rwandas and 56 percent of Namibias total
sovereign debt (MEFMI 2014).
Conference participants elaborated on some of the reasons
behind the recent surge of sovereign bond issuances by
African countries. Among other things, they attributed this
surge to the increase in fiscal space created by the HIPC
Initiative and MDRI; large borrowing needs to finance
development; changes in the institutional environment,
giving low-income countries more flexibility in their
borrowing; the lowering of international borrowing costs as
a result of unconventional monetary policies in advanced
economies, as well as steady growth rates in Africa; and the
fact that private loans do not come with strings attached
and governments therefore have more control over where
they channel borrowed money (Sy 2013). One participant
even noted that issuing international bonds has become
more than simply a financial issue for African finance
ministers; it has become a rite of passage, a ticket into an
elite club for them and their countries.
As conference participants noted, there are many upsides
to borrowing from private markets. First and foremost,
private loans unlike those from the IMF and World Bank
are not made conditional on the fulfillment of painful,
and sometimes misguided, policy adjustments. They do,
however, still encourage sound macroeconomic policies
and debt management practices, which positively influence
market perceptions of a countrys creditworthiness and,
in doing so, increase its access to affordable international

AFRICAN PERSPECTIVES ON SOVEREIGN DEBT RESTRUCTURING

credit. Borrowing from international markets can also
improve government transparency and fiscal management
due to the enhanced scrutiny and information standards
of foreign investors. Furthermore, issuing sovereign bonds
can help African countries better integrate into global
markets; for example, they serve as a benchmark for
pricing corporate bonds in international markets. Private
borrowing also allows African countries to diversify their
investor base (Osafo-Maafo 2014).
With such rewards, however, come considerable risks.
Conference participants emphasized the need for African
governments to proceed with caution and discipline in
their embrace of market financing. While private loans do
not come with strings attached, they do come with much
higher and more volatile interest rates, especially at a
time when the US Federal Reserves tapering activities
are driving large capital outflows from developing and
emerging economies.
Indeed, one of the biggest external risks to Africa in 2014
stems from the Feds tapering program (Osafo-Maafo 2014).
Since the Fed announced its intention to scale back its asset
purchases in May 2013, several developing and emerging
economies have witnessed considerable capital flight and,
with it, downward pressure on their domestic currencies
and upward movement on their international borrowing
costs. According to a study by Deutsche Bank, South
Africa experienced net capital outflows of $632 million
in June 2013, causing its currency to depreciate by almost
18 percent against the US dollar (Masetti and Mihr 2013).
The study also reports that yields on Eurobonds issued
by SSA countries have increased by more than 100 basis
points since the introduction of the tapering program. The
interest rate on Ghanas 10-year bond has jumped from 7.5
percent to just under 10 percent. Nigeria has been forced
to accept a rate of 6.6 percent for its Eurobond issuance in
July 2014 nearly twice the 3.6 percent yield for its bond
issuance in early 2013 before tapering began. Zambias
recent $1 billion bond issuance was priced at 8.6 percent,
compared to 5.3 percent on its inaugural bond issuance
in 2012 (World Bank 2014). In light of these trends and
the prospect of further Fed tapering in the near future,
conference participants worried about Africas growing
exposure to adverse global financial developments.
Given the spiking levels and servicing costs of sovereign
debt in Africa, conference participants expressed
unanimous concern over the prospect of a new round of
sovereign defaults and debt restructurings. Several SSA
countries have already recently experienced sovereign
debt difficulties. In 2008, Seychelles defaulted on a
$230 million Eurobond; in 2011, following election disputes,
Cte dIvoire missed a $29 million interest payment on
a bond issued in 2010 (Sy 2013). Ghanas current debt
difficulties are forcing it to put on hold its plan to issue a
$1.5 billion Eurobond in 2014, and Gabon is struggling to
find money for a 10-year $1 billion Eurobond. Importantly,

defaults on private debt carry much harsher penalties than

do defaults on the concessional public debt held by the
IMF and World Bank.
Borrowing from capital markets also comes with the
risk of costly litigation and a loss of access to affordable
international credit in the event of a default and/or
restructuring. As mentioned, debt distress is not a distant
prospect, as many African countries now find their external
debt on par with or above pre-HIPC levels (Otieno 2014).
Ghana, a post-HIPC success story until recently, is now
reportedly seeking assistance from the IMF.
If the need arises, then, through what mechanism could
African countries restructure their growing private debts?
During the 1970s and 1980s, when bank loans were the
predominant form of private lending to sovereigns, the
London Club provided a venue for relatively coordinated
restructurings. In the contemporary era of bond finance,
however, the London Club is of waning relevance. Even
if the club were of greater significance, it was never a
comprehensive solution to the many problems that plague
sovereign debt restructurings. Any future restructuring
of Africas privately held bonds will thus, in the absence
of reform, be subject to the familiar problems8 legal
disputes, coordination challenges, recalcitrant creditors
that tend to delay and escalate the cost of debt workouts
and, in doing so, postpone a countrys return to economic
health.

GOVERNING SOVEREIGN DEBT

IN AFRICA: CLEAR PROBLEMS,
CLOUDY SOLUTIONS
Maintaining sovereign debt sustainability remains a
critical challenge for post-HIPC countries, especially in
light of their vast development needs. To meet these needs,
African countries are entering uncharted territories as
they increasingly turn toward new bilateral lenders and
international financial markets, both of which offer credit
on harder terms, and both of which present new political
and economic risks and opportunities. As one participant
noted: The new frontiers of borrowing have a completely
different risk profile compared to the concessional loans
that most low income countries held up to the 2000s
(Otieno 2014, 2). Others noted that while the diversification
of borrowing has many positive features, the greater
availability of credit from a greater variety of sources has
also led to higher levels of borrowing, with the distinct
downside risk of future defaults and debt restructurings.
A greater number and variety of creditors can also further
complicate restructuring processes by introducing more
opportunities for collective action problems and conflicts
of interest (ibid.).
8 For an overview of these problems and the proposed solutions, see
Brooks and Lombardi (2014).

Skylar Brooks, Domenico Lombardi and Ezra Suruma 7

CIGI Papers no. 43 September 2014

Despite the risk of future sovereign debt difficulties in
Africa, there is a dearth of suitable mechanisms for dealing
with defaults and restructurings in an orderly, timely and
fair manner. As participants reiterated many times over,
the HIPC Initiative and MDRI were deliberately designed
as one-off exercises and will, therefore, not be available to
help resolve future cases of sovereign debt distress, which
seem increasingly probable, on the African continent
(Magande 2014). Moreover, as the composition of Africas
debt structure shifts toward new public and private
lenders, the Paris Club becomes an increasingly impotent
mechanism for restructuring African countries sovereign
debt. There are also few well-defined procedures for
negotiating the restructuring of sovereign bonds. Despite
long-standing experiences with sovereign insolvencies,
commented one participant, no mechanism presently
exists to deal with the complex debt structures of many
countries in a comprehensive way (Otieno 2014, 3). The
prospect of severe debt difficulties, coupled with the lack of
a clear method of resolving them, thus underscore[s] the
need for a new global framework for debt restructuring
(ibid.).
Most participants therefore agreed that a revised
approach to sovereign debt restructuring is needed at
the international level. Several participants commented
on the advantages of a statutory approach to sovereign
debt restructuring, such as the IMFs 2001 proposal for a
sovereign debt restructuring mechanism (SDRM) (Krueger
2002). One noted that a statutory approach is preferable
because it would be capable of binding creditors that
hold different debt instruments to a common solution
something collective action clauses (CACs) have thus far
failed to do (Acquah 2014). Another remarked that fears
that an SDRM-like arrangement would encourage debtor
moral hazard are overblown, because sovereign debtors do
not take the issue of default lightly (Tumusiime-Mutebile
2014). Even if an effective restructuring mechanism did
exist, defaults and debt restructurings would continue to
carry very high costs for sovereign borrowers including
reputational damage and increased borrowing costs
and would thus be avoided to the greatest extent possible.
Despite the theoretical strengths of a statutory
arrangement, participants conceded that political support
for such an approach remains limited. The so-called
contractual approach, by contrast, was seen as more
practical, since it enjoys greater support and does not
require political agreement at the international level. At
the same time, noted one participant, CACs and other
contractual innovations should not be seen as a substitute
for a more comprehensive multilateral approach to debt
restructuring (ibid.).
Alternatively, between these two poles, a number of
participants advocated a hybrid approach that could blend
together key elements of both contractual and statutory
proposals (Acquah 2014; Otieno 2014). Some elucidated
8 CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATION

general principles that should guide any new arrangement

(ibid.). One participant, for example, argued that Africa
needs to think of a hybrid mechanism that is guided by
key principles of objectivity, impartiality, inclusivity,
comprehensiveness and conclusiveness (Otieno 2014,
14). Others, however, provided more concrete proposals,
such as the creation of a fair, independent and transparent
international sovereign debt arbitration process to settle
the disputes that invariably arise during restructurings
(Mutazu 2014). Unlike the proposed SDRM, this arbitration
process would take place within a non-creditor institution,
such as the United Nations. While participants agreed that
this would neutralize the conflict of interest that arises
when creditor institutions such as the IMF and World Bank
adjudicate creditor-debtor disputes to which they are a
party, some questioned the economic and legal efficacy of
such a mechanism, fearing that it would encourage moral
hazard and bring with it new forms of costly litigation
(Otieno 2014).
In light of the observation that sovereign debt restructurings
are often too little, too late, some spoke of the need for a
proactive approach to assessing debt sustainability and the
benefits of conducting pre-emptive, early restructurings
when necessary (Osafo-Maafo 2014; Thierry 2014).
Another participant opined that a debt ceiling should be
put in place for debtor countries, especially in SSA, to
ensure discipline in their borrowing (Osafo-Maafo 2014).
Participants also voiced their concern regarding holdout
creditors creditors that refuse to participate in otherwise
widely accepted debt-restructuring deals (Acquah 2014;
Kiwanuka 2014). Pejoratively referred to as vulture
funds, these creditors use litigation to block restructuring
agreements, making the default and recovery process
more protracted and costly for the debtor as well as other
creditors. As the African Development Bank (2014) aptly
describes, The vulture fund modus operandi is simple:
purchase distressed debt at deep discounts, refuse to
participate in restructuring, and pursue full value of the
debt often at face value plus interest, arrears and penalties
through litigation. Individual lawsuits often take between
three and 10 years to settle, with vulture funds averaging
recovery rates of about three to 20 times their investment
(equivalent to returns of 300 to 2000 percent) (ibid.).
According to the African Legal Support Facility, prior
to decision point, a number of HIPC countries repaid
holdouts in full because of either a fear of costly litigation,
a desire to avoid disrupting commercial relationships or a
fear of losing productive assets in cases where commercial
debt was collateralized (AfDB 2014). At least 20 HIPCs
have been threatened with or subjected to legal action
by holdout creditors since 1999 (AfDB 2014). Having
bought $3 billion worth of bad Zambian debt, one vulture
fund sued the country for $55 million and was awarded
$15.5 million (ibid.). To defang these predatory vulture
funds, some participants advocated the setting up of special

AFRICAN PERSPECTIVES ON SOVEREIGN DEBT RESTRUCTURING

and permanent courts to settle disputes, while others
recommended the pursuit of international agreements
on a stronger and more uniform contractual approach.
Others still returned to the idea of a statutory, treaty-based
approach to sovereign debt restructuring, which could
effectively neutralize the threat of vulture funds.

WORKS CITED

On the role of the IMF, participants noted that at the very

least there should be a well-functioning framework to
guide the IMFs role in sovereign debt crisis management.
Such a framework should specify the conditions under
which funds will be disbursed before any program,
including debt restructuring, is put together. Going further,
one participant suggested that the IMF should establish an
emergency fund for SSA countries, which would provide
bridge financing over a specified time period to help
them get through short-term liquidity crunches. While
the IMFs new proposal (IMF 2014) for debt reprofiling
was not widely mentioned, it was noted that introducing
sovereign contingent convertible (coco) bonds bonds
that would trigger a reprofiling in the event of a crisis
could be a good idea (Tumusiime-Mutebile 2014).

Acquah, Paul A. 2014. Presentation given at African

Perspectives on Sovereign Debt Restructuring
conference, Kampala, Uganda, August 7-8.

CONCLUDING REMARKS
Africas debt structure is in the midst of transformative
change. But even as the continent shifts toward international
markets and new bilateral creditors, the threat of a new
round of debt crises in Africa remains present and, in some
ways, more pronounced. The international community
stands to learn not only from Africas extensive experience
with debt restructuring, but also from its current transition.
Perhaps the most powerful lesson offered by African
policy makers and debt experts is a somewhat familiar,
but no less disconcerting one: the current regime lacks the
mechanisms to fairly and efficiently restructure sovereign
debt, whether it is owed to multilateral, bilateral or private
sector lenders. While Africa is not the only region at risk, it
is perhaps the most vulnerable.

Abrego, Lisandro, and Doris C. Ross. 2001. Debt Relief

under the HIPC Initiative: Context and Outlook for
Debt Sustainability and Resource Flow. IMF Working
Paper. WP/01/144.

AfDB. 2014. Vulture Funds in the Sovereign Debt

Context.
www.afdb.org/en/topics-and-sectors/
initiatives-partnerships/african-legal-support-facility/
vulture-funds-in-the-sovereign-debt-context/.
Bategeka, L., L. Kiiza and E. Suruma. 2014. African
Perspectives on Sovereign Debt Restructuring: The
Ugandan Experience. Paper commissioned for
African Perspectives on Sovereign Debt Restructuring
conference, Kampala, Uganda, August 7-8. Unpublished
data.
Bayraktar, Nihal, and Hippolyte Fofack. 2011. PostHIPC Growth Dynamics in Sub-Saharan Africa.
Policy Research Working Paper 5924. The World Bank.
December.
Blas, Javier. 2013. Africa Bond Issues Soar to Record
Sums. Financial Times, October 8. www.ft.com/intl/
cms/s/0/7f11fab8-2f61-11e3-ae87-00144feab7de.
html#axzz3Bi1YPMDe.
. 2014. IMF Warns Africa of Homegrown
Economic Risks. Financial Times, April 24.
www.ft.com/intl/cms/s/0/08079a32-cb78-11e3-8ccf00144feabdc0.html#axzz3Bi1YPMDe.
Boote, A., and K. Thugge. 1997. Debt Relief for Lowincome Countries and the HIPC Initiative. IMF
Working Paper. WP/97/24.
Brooks, Skylar and Domenico Lombardi. 2014. Sovereign
Debt Restructuring: A Backgrounder. Draft paper.
http://new-rules.org/storage/documents/sovereign_
debt_restructuring_background_paper_draft2014.pdf.
Das, Udaibir S., Michael G. Papaioannou, and Christopher
Trebesch. 2012. Sovereign Debt Restructurings 1950
2010: Literature Survey, Data, and Stylized Facts. IMF
Working Paper WP/12/203. August.
Elbadawi, I., B. Ndulu, and N. Ndungu. 1997. Debt
Overhang and Economic Growth in Sub-Saharan
Africa. In External Finance for Low-Income Countries,
edited by Iqbal, Z. and R. Kanbur. Washington, DC:
IMF.
IMF. 2009. World Economic Outlook: Crisis and Recovery.
April. Washington, DC: IMF.
Skylar Brooks, Domenico Lombardi and Ezra Suruma 9

CIGI Papers no. 43 September 2014

. 2013a. Heavily Indebted Poor Countries (HIPC)
Initiative and Multilateral Debt Relief Initiative (MDRI)
Statistical Update. IMF. December.
. 2013b. 2013 Low-Income Countries Global Risks
and Vulnerabilities Report. IMF. September.
. 2014a. Factsheet: A Guide to Committees, Groups,
and Clubs. IMF. April 4. www.imf.org/external/np/
exr/facts/groups.htm#CC.
. 2014b. Factsheet: Debt Relief under the Heavily
Indebted Poor Countries (HIPC) Initiative. IMF. March
24. www.imf.org/external/np/exr/facts/hipc.htm.
. 2014c. Factsheet: The Multilateral Debt Relief
Initiative. IMF. March 2014. www.imf.org/external/
np/exr/facts/mdri.htm.
Kasekende, L., Z. Brixova, and L. Ndikumana. 2010.
Africa: Africas Counter-Cyclical Policy Responses
to the Crisis. Journal of Globalization and Development
(1): 1.
Kiawu, Abubakar, Robert S. K. Doe, Anne Laski and
Edward Corcoran. 2014. Liberias Experience of Debt
Restructuring and Relief. Paper commissioned for
African Perspectives on Sovereign Debt Restructuring
conference, Kampala, Uganda, August 7-8. Unpublished
data.
Kiwanuka, Maria. 2014. Presentation given at African
Perspectives on Sovereign Debt Restructuring
conference, Kampala, Uganda, August 7-8.
Krueger, Anne O. 2002. A New Approach to Sovereign
Debt Restructuring. April. Washington, DC: IMF.
Magande, Ngandu Peter. 2014. Presentation given at
African Perspectives on Sovereign Debt Restructuring
conference, Kampala, Uganda, August 7-8.
Masetti, Olivier, and Aila Mihr. 2013. Capital Markets
in Sub-Saharan Africa. Research Briefing: Emerging
Markets. Deutsche Bank. DB Research. October 7.
MEFMI. 2010. A Study on the Cost and Benefits of Debt
Relief in the MEFMI Region, MEFMI.
. 2014. Data on African countries borrowing from
the Paris Club and China and sovereign bond issuances.
Provided by the Macroeconomic and Financial
Management Institute of Eastern and Southern Africa.
Mutazu, Tirivangani. 2014. Paper commissioned for
African Perspectives on Sovereign Debt Restructuring
conference, Kampala, Uganda, August 7-8. Unpublished
data.

10 CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATION

Nafziger, E. Wayne. 1993. The Debt Crisis in Africa.

Baltimore, MD: John Hopkins University Press.
Osafo-Maafo, Yaw. 2014. Governing Sovereign Debt:
Whats at Stake for Africa? The Case of Ghana. Paper
commissioned for African Perspectives on Sovereign
Debt Restructuring conference, Kampala, Uganda,
August 7-8. Unpublished data.
Otieno, Raphael O. 2014. Global Perspectives on
Sovereign Debt Restructuring: Seminar Paper. Paper
commissioned for African Perspectives on Sovereign
Debt Restructuring conference, Kampala, Uganda,
August 7-8. Unpublished data.
Paris Club. 2014. www.clubdeparis.org/en/.
Sy, Amadou N.R. 2013. First Borrow. Finance &
Development 50 (2).
Thierry, Siewe Guillaume. 2014. Is the International
Debt Architecture in Need of Fundamental Reform:
Cameroons Experience with Sovereign Debt
Restructuring and Arguments for a Change in the
Global Sovereign Debt Management Architecture.
Presentation given at African Perspectives on Sovereign
Debt Restructuring conference, Kampala, Uganda,
August 7-8.
Tumusiime-Mutebile, Emmanuel. 2014. Presentation given
at African Perspectives on Sovereign Debt Restructuring
conference, Kampala, Uganda, August 7-8.
Weiss, Martin A. 2013. The Paris Club and International
Debt Relief. Congressional Research Service.
December.
World Bank. 2012. The HIPC Initiative and the MDRI.
http://siteresources.worldbank.org/INTDEBTDEPT/
Resources/468980-1256580106544/HIPC_Spring2012_
ENG.pdf.
.
2014.
Sub-Saharan
Africa,
Global
Economic Prospects. The World Bank. June.
www.worldbank.org/content/dam/Worldbank/
GEP/GEP2014b/GEP2014b_SSA.pdf.

AFRICAN PERSPECTIVES ON SOVEREIGN DEBT RESTRUCTURING

APPENDIX: CONFERENCE AGENDA

All sessions will take place at the Lake Victoria Serena Resort.

WEDNESDAY, AUGUST 6, 2014

Swimming Pool Deck
19:0021:00

Welcome Reception

THURSDAY, AUGUST 7, 2014

Kalangala Hall A 1st Floor
8:309:00

Registration (just outside Kalangala Hall, opposite the Business Centre)

9:009:30

Opening and Welcoming Remarks

Speakers:
Tumwebaze Patrick, Executive Director, Uganda Debt Network
Domenico Lombardi, Director, Global Economy Program, Centre for International Governance Innovation
Ezra Suruma, Senior Presidential Advisor, Uganda; Chair of the Board, Uganda Debt Network
9:3010:30

Keynote Address:
His Excellency Edward Ssekandi, Vice President of the Republic of Uganda

10:3011:00

Tea and Coffee Break

11:0013:00

Session I: Is the International Debt Architecture in Need of Fundamental Reform?

Introductory Presentation
Domenico Lombardi, Director, Global Economy Program, Centre for International Governance Innovation
Skylar Brooks, Research Associate, Global Economy Program, Centre for International Governance Innovation

Panel Discussion
Chair: Ezra Suruma, Senior Presidential Advisor, Uganda; Chair of the Board, Uganda Debt Network

Presenters:
Abubarkar M. S. Kiawu, Deputy Director Debt Management, Ministry of Finance, Liberia
Siewe Guillaume Thierry, Assistant Director of Debt Operations, Caisse Autonome dAmortissement du
Cameroun

Skylar Brooks, Domenico Lombardi and Ezra Suruma 11

CIGI Papers no. 43 September 2014

Respondents:
Keith Muhakanizi, Permanent Secretary, Ministry of Finance, Planning and Economic Development,
Uganda
Lawrence Bategeka, Senior Independent Development Consultant, Economic and Financial Management
Consultancy, Uganda
13:0014:00

Lunch (Citadel Restaurant)

14:0015:30

Session II: Sovereign Debt Restructuring: African Perspectives on the Debate

Chair: Domenico Lombardi, Director, Global Economy Program, Centre for International Governance
Innovation

Presenters:
Raphael Otieno, Director, Debt Management Programme, Macroeconomic and Financial Management
Institute of Eastern and Southern Africa, Zimbabwe
Paul A. Acquah, Former Governor, Bank of Ghana
Respondents:
Hon. Maria Kiwanuka, Minister of Finance, Planning and Economic Development, Uganda
Emmanuel Tumusiime-Mutebile, Governor, Bank of Uganda
15:3016:00

Tea and Coffee Break

16:0017:30

Session III: Equity and the Ethics of Sovereign Debt and Sovereign Debt Restructuring
Chair: Hon. Mayanja Nkangi, former Minister of Finance and Economic Planning, Uganda; Advocate

Presenters:
Tirivangani Mutazu, Senior Policy Officer, African Forum and Network on Debt and Development, Zimbabwe
James S. Roberts, Executive Director, Global Campaign Against Poverty and Hunger in Liberia
Tumwebaze Patrick, Executive Director, Uganda Debt Network
Respondents:
Isaac Ngoma, President, Economics Association of Zambia
Mukunda Julius, Coordinator, Civil Society Budget Advocacy Group, Uganda
Sarah Ssewanyana, Executive Director, Economic Policy Research Centre, Uganda
18:30 Dinner (Citadel Restaurant)

12 CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATION

AFRICAN PERSPECTIVES ON SOVEREIGN DEBT RESTRUCTURING

FRIDAY, AUGUST 8, 2014
Kalangala Hall A 1st Floor
9:0010:30

Session IV: Governing Sovereign Debt: Whats at Stake for Africa?

Chair: Augustus Nuwagaba, Department of Social Work and Social Administration, Makerere University,
Uganda

Presenters:
Ezra Suruma, former Minister of Finance, Planning and Economic Development, Uganda; with
Lawrence Kiiza, Director of Economic Affairs, Ministry of Finance, Planning and Economic Development,
Uganda
Yaw Osafo-Maafo, former Minister for Finance and Economic Planning, Ghana
Respondent:
Ngandu Peter Magande, former Minister of Finance and National Planning, Zambia
10:3011:00

Tea and Coffee Break

11:0013:00

Session V: Summary and Conclusions

Chair: Ngandu Peter Magande, former Minister of Finance and National Planning, Zambia
Panellists selected from previous four sessions will give a brief summary of their perspectives,
followed by plenary discussion.

Closing Remarks
Domenico Lombardi, Director, Global Economy Program, Centre for International Governance Innovation
Ezra Suruma, Senior Presidential Advisor, Uganda; Chair of the Board, Uganda Debt Network

13:0014:00

Lunch (Citadel Restaurant) followed by departure

SESSION TOPICS
Session I: Is the International Debt Architecture in Need of Fundamental Reform?
This session will focus on the pros and cons of reforming the current approach to sovereign debt restructuring. Many
commentators argue that sovereign debt restructurings are too costly and that new mechanisms are needed to facilitate
more timely, orderly and fair restructurings. They maintain that the creation of appropriate mechanisms will help to
eliminate creditor moral hazard and the efficiency losses associated with debt restructuring. Others, however, argue
that sovereign debt restructuring is supposed to be costly, and that any mechanisms to reduce this cost will also make
restructurings more frequent and will raise the cost of borrowing for sovereign debtors. What are the advantages and
disadvantages of reforming the international debt architecture?
The literature on sovereign defaults and debt restructurings illustrates how a lack of coordination among creditors and a
lack of information among/between creditors and debtors can delay necessary restructurings and postpone a countrys
return to economic health. The literature also highlights how the lack of a credible commitment (during normal times) to
restructure unsustainable debt can encourage the type of over-lending and over-borrowing that leads to sovereign debt
crises in the first place. Are these problems familiar to the African experience? Are there other problems with sovereign
debt and sovereign debt restructuring that are more relevant to the African experience generally or to your countrys
experience specifically? Do HIPC initiative restructurings differ from restructurings during a sovereign debt crisis? What
are the key lessons to draw from your experience with sovereign debt restructuring?
Skylar Brooks, Domenico Lombardi and Ezra Suruma 13

CIGI Papers no. 43 September 2014

Session II: Sovereign Debt Restructuring: African Perspectives on the Debate
This session will focus on the evolving debate on how best to govern sovereign debt restructuring. Over the last decade,
this debate has become increasingly polarized between two alternative approaches to restructuring: the market-based
contractual approach of CACs; and the treaty-based statutory approach of an international bankruptcy regime. How can
African perspectives inform this debate? Are CACs the only practical approach? Does a statutory approach such as
the SDRM proposed by the IMF in 2001 protect debtor interests better than CACs? How would a statutory approach
affect borrowing costs for African countries? How does Africas current position within the global economy and global
economic governance institutions, as well as some countries history with odious debt, shape its preferences for a particular
approach to sovereign debt restructuring?
Since the onset of the euro-zone crisis, a number of new proposals for handling sovereign debt restructuring have also been
put forward. These proposals such as the creation of a semi-formal Sovereign Debt Forum or the creation of sovereign
coco bonds and GDP-linked bonds represent innovative hybrid approaches that do not fit cleanly into the statutoryversus-contractual dichotomy. What do delegates think about these new prospective approaches? Do they improve upon
CACs? Are they more politically feasible than a statutory sovereign bankruptcy regime? Do these proposals strike an
appropriate balance between creditor and debtor interests?
Session III: Equity and the Ethics of Sovereign Debt and Sovereign Debt Restructuring
This session will focus on fairness and the distributional implications of sovereign debt restructuring. Although it is often
written and spoken about in technical language, sovereign debt restructuring is in fact a very politically charged issue,
wrapped up in personal judgements about equity and the appropriate balance of public-private burden sharing during
financial crises. On one hand, many private sector representatives and free-market advocates oppose sovereign debt
restructuring because it represents a redistribution of capital from creditors (often private) to debtors (public). On the
other hand, private losses that generate financial crises are often socialized and borne by the public sector, representing
a large redistribution of pain from private financial actors to the population writ large. Furthermore, when the IMF and
bilateral official creditors bail-out countries with sovereign debt problems, domestic populations are often left to bear the
brunt of the crisis (for example, through austerity measures), while the countrys international private creditors remain
unscathed. For many, this is a deeply unfair distribution of the costs and benefits of sovereign debt and sovereign debt
crises.
Drawing on African countries experiences, what are the different distributional concerns that arise from sovereign
debt and sovereign debt restructuring? What is the best way to balance these different concerns? Should the interests of
some groups (such as creditors, debtors, citizens) be privileged over the interests of others? Are lenders and borrowers
equally (or differentially) responsible for the buildup of unsustainable debt? What does that imply for burden sharing in
resolution of sovereign debt crises?
Session IV: Governing Sovereign Debt: Whats at Stake for Africa?
This session will focus on African countries interests and concerns regarding the buildup and resolution of sovereign
debt in Africa and in the global economy more generally. In Africa, there have been significant new developments in
sovereign borrowing; most notably, many African countries are increasingly looking to private international capital
markets, rather than other governments, for their financing needs a development that carries both opportunities and
risks. Outside of Africa, there are a number of heavily indebted countries whose debt difficulties
could have international ramifications that affect Africa (and other continents). From these observations, several questions
arise.
For African countries, what are the main opportunities and challenges of borrowing from international capital markets?
Is there a risk that the US Federal Reserves tapering of its quantitative easing program will put upward pressure on
African borrowing costs? What are African countries main concerns regarding sovereign debt and the prospect of future
sovereign debt crises (reduced demand for African exports, a freezing of international capital flows, intergenerational
equity, fairness of IMF treatment)? What interest do African countries have in reforming the institutional arrangements
(such as London Club, Paris Club, CACs, IMF programs and others) that govern sovereign debt? What are the implications
of such reform? What is an appropriate and fair role for the IMF in sovereign debt crises?

14 CENTRE FOR INTERNATIONAL GOVERNANCE INNOVATION

ABOUT CIGI
The Centre for International Governance Innovation is an independent, non-partisan think tank on international
governance. Led by experienced practitioners and distinguished academics, CIGI supports research, forms networks,
advances policy debate and generates ideas for multilateral governance improvements. Conducting an active agenda
of research, events and publications, CIGIs interdisciplinary work includes collaboration with policy, business and
academic communities around the world.
CIGIs current research programs focus on three themes: the global economy; global security & politics; and international
law.
CIGI was founded in 2001 by Jim Balsillie, then co-CEO of Research In Motion, and collaborates with and gratefully
acknowledges support from a number of strategic partners, in particular the Government of Canada and the Government
of Ontario.
Le CIGI a t fond en 2001 par Jim Balsillie, qui tait alors co-chef de la direction de Research In Motion. Il collabore avec
de nombreux partenaires stratgiques et exprime sa reconnaissance du soutien reu de ceux-ci, notamment de lappui
reu du gouvernement du Canada et de celui du gouvernement de lOntario.
For more information, please visit www.cigionline.org.

CIGI MASTHEAD
Managing Editor, Publications

Carol Bonnett

Publications Editor

Jennifer Goyder

Publications Editor

Vivian Moser

Publications Editor

Patricia Holmes

Graphic Designer

Melodie Wakefield

EXECUTIVE
President

Rohinton Medhora

Vice President of Programs

David Dewitt

Vice President of Public Affairs

Fred Kuntz

Vice President of Finance

Mark Menard