The good news is that while overall debt levels have generally increased, the measures requested by African governments from development finance institutions (DFIs) and multilateral lenders have enabled many African countries to support their economies without contracting too much. additional private debt. The IMF has also allocated $33 billion in special drawing rights (SDRs) to Africa, providing an immediate boost to liquidity without adding to the debt portfolio.

At the same time, the G20’s short-term crisis management tool – the Debt Service Suspension Initiative (DSSI) – has just come to an end, and its intended replacement – the “Common Framework for Dealing with Debt Beyond DSSI” – has been implemented much slower than originally planned (so far only Chad, Ethiopia and Zambia have committed).

The role of China over the past two decades

Over the past 20 years, China has become the continent’s largest source of development finance and now accounts for around a fifth of all lending to Africa. Until recently, these loans were concentrated in seven strategic or resource-rich countries – Angola, Cameroon, Djibouti, Ethiopia, Republic of Congo, Kenya and Zambia – which peaked at 29.5 billion in 2016 but fell back in 2019 to $7.6 billion. Nonetheless, China’s extensive trade and investment ties with the region, as well as the importance of some of the borrowers above, mean that it is a critical player in any African and global solution to over-indebtedness.

China’s involvement in African debt varies widely from country to country and over time. Although in recent years it has been framed in the context of the Belt and Road Initiative, it has been mostly uncoordinated and unplanned and has been carried out by competing lenders with ties to different elements. of the Chinese state.

The rapid expansion of Chinese lending to resource-rich African states in the early 2000s, particularly oil producers such as Angola and the Republic of Congo, helped infrastructure development, but was undermined by poor governance, forcing China to grant new loans to strengthen its African partners. against the negative effects of resource dependence.

China’s role today

In Kenya and Zambia, Chinese lending for major infrastructure projects (such as Kenya’s standard gauge railway) has been undermined by bloated concepts, poor planning and a parallel huge increase in private sector debt.

Lack of transparency on the precise nature of the terms governments have agreed has led to intense domestic criticism and accusations that China is seeking to control strategic assets. China’s loans to Djibouti and Ethiopia do indeed have strategic or geopolitical objectives, but the current situation is one in which the leverage generally belongs to the debtor rather than the creditor. More generally, African “agency” is a key factor in the current debt situation.

As the poor quality of much of its past lending has become apparent in recent years, Chinese authorities have sought to better monitor new development loans and have demanded greater attention to sustainability.

Loans are now generally given on a smaller, more manageable scale than before and the ambitious strategic visions of linking Central Africa to the Belt and Road via integrated transport corridors seem to have been abandoned. With the introduction of the Global Development Initiative in September 2021, it appears that China is moving towards a “new development paradigm”, emphasizing support for SMEs and investments in human capital, green development and emphasizing FDI flows rather than debt financing.

This change was reinforced by China rethinks its own domestic development strategy under the “dual circulation policy”, which gives more weight to domestic consumption as the engine of growth than to external demand, the latter having become less reliable.

At the same time, China is keen to preserve as much value as possible of what has already been loaned and maintain its reputation in the developing world, which remains a key supporter of Beijing on many UN-led platforms.

The result is that China has very cautiously moved away from what in the past was a strong preference for bilateral treatment of problem debtors. The Chinese state does not want to be a rule taker vis-à-vis the West on debt issues, but increasingly seems to recognize that multilateral approaches (ideally on an “à la carte” basis) can help manage both the pressures on its Africa partners and its own challenges.

He therefore cautiously supported the DSSI for some African States when it was launched in April 2020 and so is the Common Framework when it is launched in 2021.

What problems can we see?

However, the very slow implementation of the Common Framework reflects four specific problems related to China’s role. First, China’s unease with the central and independent role played by the IMF to determine how much a country can afford to pay through its debt sustainability analysis (DSA).

Second, Western public and private sector lenders are concerned about the lack of transparency of the total amount of debt that African countries have borrowed from China. Third, there is a divergence of views between Chinese authorities and Western governments on exactly how burden sharing should be implemented between different types of official lending institutions, and fourth, differences between Chinese lenders and private sector lenders on how any relief should be provided (eg the choice between maturity extension and reduced interest rates or debt haircuts).

Slow but steady resolutions

Sustained efforts have been made over the past year to try to resolve these issues, but progress has been slow. A necessary condition for further progress is that African nations clearly want it and push China and the West to reach consensus on the implementation of the Common Framework.

A joint initiative should include three elements. First, a broad-based “G20 plus” dialogue, focused on creating a stronger framework to address Africa’s longer-term external financing needs, building in part on the cooperation mechanisms created to address the immediate debt relief crisis, with a focus on African voices. .

Second, a high-level political agreement on enhanced cooperation between the West and China and other G20 lenders regarding African debt and longer-term financing needs. Third, a technical program led by the G7/G20 Finance Tracks to address immediate Common Framework issues and related debt relief initiatives.

At the end of the line

Such a package would not solve all the problems related to multilateral debt relief – some, such as those related to China’s role in the IMF and the size of its quota, cannot be solved by an initiative centered on the only international debt.

Nor could it end competition between China and the West, and even within the West, over trade and investment ties with Africa. This will continue, and it is in the interest of African borrowers that it will continue to do so.

But it would ensure that African countries with unsustainable debt can address this burden through a longer-term framework that could deliver substantial benefits, not just for themselves but also for their lenders. 2022 offers a window of opportunity to reach an agreement on such a package and all parties would do well to seize it.