Covid-19: International Debt Relief for Africa and China’s Role

Zhou Yuyuan

Associate Research Fellow， Center for West Asian & African Studies，

Shanghai Institutes for International Studies

The outbreak Covid-19 has a tremendous impact on the economy and livelihood of African countries. The epidemic prevention and control poses serious challenges to the limited financial resources of African countries. The public foreign debt of African countries amounted USD 583 billion， more than double of that in 2008. There are 18 countries in debt distress and faced with high risk according to IMF. In the context of the economic and financial difficulties in Africa caused by Covid-19， debt repayment pressure will undoubtedly further aggravate the plight of some African countries. In view of the important role of debt relief in the rapid release of liquidity， in order to support African countries as well as other developing countries to fight the pandemic， debt relief for Africa has quickly become an important consensus of the international community. Marked by the G20 Debt Relief Initiative， the international community's debt relief for Africa has been put on the agenda. China as an important stakeholder of African debt has been actively taking part in the international collective debt relief and making earnest efforts in exploring the use of bilateral means， thus playing an important role in the debt relief for Africa.

Major Ways of International

Debt Relief for Africa

Debt relief includes repayment suspension， refinancing， debt restructuring， debt reduction and exemption and so on. In a broad sense， debt relief also includes indirect policy means such as trade， aid and investment. The Debt Relief Initiative of G20， the assistance and financing support of international financial institutions and bilateral debt reduction and exemption are all becoming major means of debt relief for Africa by the international community.

I. Debt Relief Initiative of G20

The Debt Relief Initiative adopted by the G20 on April 15， 2020 is an important achievement of international cooperation on joint debt relief， the main contents of which are as follows. First， the suspension is made for principal and interest repayment by low-income countries from May 1， 2020 to the end of the year， with an extension of three-year repayment period and one-year grace period. Second， the Initiative is applicable to all bilateral official creditors. Private creditors participate voluntarily based on the principle of equal terms. Multilateral financial institutions decide whether to participate when necessary on the premise of maintaining credit rating and low-costing financing. Third， the Initiative has made corresponding requirements for debtor countries， including that the liquidity released by debt relief must be used in fighting the epidemic and be supervised by international financial institutions; that all public debts shall be disclosed （on the basis of respecting trade secrets）; that non-preferential loans cannot be sought during the debt suspension period， unless they are in line with the IMF restriction policies. As a result of the joint efforts made by G20， international financial institutions， the Paris Club as well as international debt NGOs， the Debt Relief Initiative marks the first practical cooperation between western countries and China on international debt relief， and is of great historic significance.

II. Debt Relief by International Financial Institutions

In response to the impact of the pandemic， the International Monetary Fund， the World Bank and other international financial institutions have adopted a series of measures. First， an IMF support package was formulated， including mobilization of a borrowing capacity of USD 1 trillion， full opening of exiting lending instruments， temporary doubling of the IMF emergency relief quota （fast financing/lending tools）， and setting of short-term liquidity lines. Second， the World Bank and other multilateral financial institutions are promoting the implementation of an emergency response plan of more than USD 200 billion. On April 8， the African Development Bank announced a Covid-19 Response Facility （CRF） that will provide up to USD 10 billion. As of July 30， 2020， CRF has already provided nearly USD 2.2 billion in aid or preferential loans to over 30 African countries. On April 17， the World Bank announced that it had provided urgent support to 30 African countries and would provide USD 160 billion in financial support in the next 15 months， of which USD 55 billion would be used in Africa. Through the Catastrophe Containment and Relief （CCR）， the IMF has provided debt relief to 29 least-developed countries， 23 of which are located in Africa. According to the data updated on August 10， 2020， the IMF has approved emergency loans and special drawing rights to 33 African countries， providing more than USD 15.4 billion in emergency loans through the Rapid Credit Facility （RCF） and the Rapid Financing Instrument （RFI）.

III. Bilateral Debt Relief

The international community has attached increasing importance to the issue of bilateral debt relief for Africa. In April 2020， French President Marcon pledged 1.2 billion euro for African development aid， of which more than 1 billion is in loans and 150 million as grants. Minister of Development of Canada Karina Gould says that debt relief for Africa is an important topic and goal of Canadas cooperation with Africa， and the Canadian government has set up a USD 30 million free aid fund in the global fund against the pandemic. In a video summit between the European Union and the group of five Sahelian countries on April 28， President of the European Council Charles Michel said European countries would discuss debt relief plans for Africa in the next three months. As of July 14， Paris Club creditors have signed “debt relief agreements” with 20 countries， including African countries.

According to International Debt Statistics 2020， the proportion of bonds and private debts in Africas external debts has reached 41% in 2018. Bonds and private debts come with higher interest rates and shorter repayment periods， thus putting greater pressure on the debt sustainability of African countries， and are also regarded as an important factor triggering debt crisis in low-income countries in Africa. Therefore， what matters is how to encourage the participation by private creditors in debt relief. To this end， the Paris Club and Institute of International Finance tried to cooperate with private creditors， yet have made limited progress. Bondholders and private financial institutions are not willing to accept the blanket approach debt relief initiative. Instead， they adhere to the principle of “one country， one meeting”. In addition， the more important fact is that debt relief will directly affect the credit rating of the debtor countries as well as their future financing ability in international capital market， which also constitutes important causes for some countries to give up debt assistance.

Chinas Role in Debt Relief

for Africa

China highly values the international communitys debt relief for Africa， and actively participates in the coordination and cooperation in this regard. China has made great efforts in advancing and implementing G20s Debt Relief Initiative， and has achieved positive progress in supporting international financing institutions relief agenda. China has also supported African countries in their fighting against the pandemic and economic recovery through trade， investment and aid.

I. China Serving as a Backbone Force in Debt Relief for Africa

Firstly， China is an important promoter of the international debt relief initiative. China holds the following five principle propositions for international collective debt relief. The first one is joint action. China adheres to all-party participation by multilateral and bilateral creditors as well as official and commercial creditors in joint debt relief for low-income countries. The second one is quick response. China calls on the relevant parties to give rapid and provisional support to low-income countries in response to the pandemic， which is different from the traditional debt restructuring. The third one is abiding by the rules. China insists that international financing is a market contract behavior. Therefore， rule of law and spirit of contract should be followed in the debt relief process， which is in line with international practice and conducive to maintaining the international financial market order. The fourth one is the balancing of interests. China calls on the full consideration of the reality of various countries in the debt relief process. The wills of creditors， debtor countries and other stakeholders should all be respected so as to avoid the risk of moral kidnapping. The fifth one is facilitating development， which is helpful to effectively reduce the actual debt burden of debtor countries， maintaining their normal financing capacity in the international market， and enabling them to embark on the healthy track of sustainable development. All these propositions are basically embodied in the Debt Relief Initiative.

Secondly， China has actively taken part in the implementation of the international Debt Relief Initiative. On May 13， 2020， a spokesman for the Chinese Foreign Ministry once again made it clear that China would suspend repayment of principal and interest from May 1 to the end of the year for eligible countries. President Xi Jinping announced at the Extraordinary China-Africa Summit on Solidarity against Covid-19 on June 17 that China would cancel the debts related to interest-free loans for some African countries which are due to the end of 2020 under the framework of Forum on China-Africa Cooperation. He also put forward some new initiatives， including calling on the G20 to further extend the debt relief period for African countries and other relevant countries based on the implementation of the exited Debt Relief Initiative， encouraging Chinas relevant financial institutions to conduct friendly consultations with African countries on commercial sovereign loan arrangements in accordance with market principles， and hoping that the international community， the developed countries and multilateral financial institutions in particular， will take more forceful actions.

Thirdly， China has continuously strengthened coordination and cooperation with the international community. Although Chinas concept， principle and method of debt relief are rather different from those of international financial institutions and the Paris Club， China has maintained good communication and cooperation with the later in terms of debt relief for Africa. In fact， China has been a none-member regular participator in the Paris Clubs activities since 2013. In recent years， China has speeded up the adoption of international standards and rules in terms of international financing and debt sustainability management. Chinas participation in international collective debt relief shows that Chinas cooperation with traditional financial and debt governance mechanisms is moving towards a new stage.

II. China Serving as a Stabilizer in Handling African Debt Crisis

In recent years， out of the need of competition among major countries， politicians and media in the United States， India and other countries continue to hype the so-called “Chinas Debt Trap” Theory， attempting to make China the scapegoat of the problems of the low-income countries. Nowadays， they are agitating “Chinas Responsibility” Theory， trying to kidnap China morally. A large number of studies have proved that China is not the source of Africas “debt problem”. Although the proportion of Chinas debt in Africa has increased rapidly， it is far lower than those of multilateral debt and private debt， and Chinas loans are mainly concentrated in a few African countries. Among African countries with debt distress and high risk， China only accounts for a certain proportion in a few of them. Research reports of Johns Hopkins Universitys programs of China-Africa Research Initiative and Debt Exemption Action have clearly pointed out that China has very little relevance to Africas debt problem.

In addition， China has never forced any borrowing country for repayment， including those from Africa， and has never used debt to grab strategic assets of other countries. On the contrary， in the context of African countries facing repayment pressure and default risk， Chinas loans play an important role in stabilizing African countries debt problems through： firstly， easing the financing and debt pressure of borrowing countries; secondly， optimizing the foreign debt structure of African countries and enrich their financing options; and thirdly， supporting economic fields such as transportation， power， energy， and infrastructure. The sustainability of development is an important prerequisite for debt sustainability， and all the above areas are important economic areas that will help to promote the development of African countries. Lastly， compared with the prosecution actions of private financial institutions or commercial banks， China will not force the African countries for repayment based on state-to-state trust and relations， which in fact helps African debtor countries to deal with debt risks in a proactive way.

III. China Serving as a Reliable Force in International Debt Relief

Historical experience shows that the debt problem cannot be solved only by debt means. Similarly， debt relief as only a policy option has limited policy effect， and can play an effective role only by collaborating with various resources such as trade， investment， finance and so on. China as one of the first countries achieving economic recovery from the pandemic is playing a major role in promoting international economic cooperation with Africa. To overcome the impact of the pandemic， China pledged to accelerate the implementation of the FOCAC Beijing Summit commitments and focus on health， rehabilitation， and economic and livelihood areas.

Meanwhile， China has helped to open a market for coffee and other commodities from Rwanda and other countries through e-commerce platforms. Chinese funded enterprises in Africa have resumed work and production. Chinese civil society organizations are also increasing their support for Africa. According to the latest data released by the General Administration of Customs of China， from January to April 2020， the import and export volume of goods trade between China and Africa totaled 385.36 billion yuan （RMB）. The overall China-Africa economic and trade cooperation remains stable. Chinas acceleration of resumption of work and production will also contribute to the economic development of African countries.

Challenges Faced by China

in Debt Relief for Africa

Debt relief is the main concern of African countries as well as the focus of international non-governmental organizations and public opinion. It can be predicted that with the changes of African pandemic situation， economic situation and international situation， China will face big challenges in African debt relief.

I. Challenge of Balancing Multilateral and Bilateral Relief

The biggest challenge of debt relief as a collective action is the so-called “taking free-riding”. At present， China mainly participates in debt relief for African and other developing countries through international coordination. However， due to the peculiarity of China-Africa relations in China's foreign affairs， some African countries are more willing to appeal to China through bilateral channels， which are inevitably different from or even conflict with the rules and methods of multilateral assistance， which will bring challenges to Chinas handling of multilateral and bilateral relations in a balanced manner. Therefore， China can properly coordinate multilateral and bilateral debt relief in accordance with the consensus， principles and norms of international debt relief and fully consider the specific situations of different countries.

II. Challenge of Stigmatizing China by Some American Politicians and Media

The U.S. uses the debt issue as an important handle to continuously defame Chinas cooperation with Africa， the Belt and Road initiative and furthermore， Chinas contribution and influence in Africa. Before the outbreak of Covid-19， some American politicians and media used the argument of “debt trap theory” to attack China， while they now turn to “China responsibility theory”， attempting to throw the blaming for the debt problem off to China. There is also a “free rider theory”， which means， African countries repay their debts to China with the loans obtained from international financial institutions. Moreover， some U.S. Congress members proposed linking debt relief to the disclosure of Chinas debt， requesting that countries receiving the BRI investment and loans cannot get the U.S. government aids. Against the overall Covid-19 backdrop， these malicious defamation and attacks have increased uncertainty of the attitude of African countries towards China as well as the development of China-Africa relations. To that end， China may take the opportunity of the current international debt relief to improve the statistics of its debt in Africa aiming to fight against false accusations with facts， data and stories of cooperation， so as to provide an authoritative source for the international community to fully understand Chinas debt situation in Africa.

III. Challenge of Balancing International Contributions and Domestic Public Opinion

The debt relief for Africa is an important embodiment of China's fulfillment of its international responsibility and provision of international public goods. However， China also faces great pressure domestically. As a victim of Covid-19， China suffered serious impact economically， especially its private and medium-and-small enterprises. Chinas economy and peoples livelihood are also in urgent need of relief and assistance. China is faced with important tasks of properly handling the relationship between foreign aid and domestic relief as well as attaching adequate importance to the concerns of domestic public opinion while carrying out international cooperation. Therefore， China needs to improve its policy-making mechanism for providing foreign aid and meanwhile， make enough efforts to steer the public opinion. By doing that， China will be able to ensure the rationality of its policy making as well as enable the true understanding of Chinas foreign aid by the international community.

Conclusion

The international communitys debt relief initiatives and programs are being planned and implemented. The G20s Debt Relief Initiative， the international financial institutions debt reduction and relief loans， and the participation of private financial institutions in the Debt Relief Initiative are together shaping the main agenda of todays debt relief for African countries. As a crucial development partner of Africa， Chinas debt relief for Africa will exert significant influence on international collective relief. President Xi Jinpings statement at the Extraordinary China-Africa Summit on Solidarity against Covid-19 identified the ways China will take for participating in the debt relief for Africa. The first one is to resolutely fulfill its promise. In addition to the commitment of direct debt relief， China will give full play to the institutional and empirical advantages of the comprehensive strategic partnership between China and Africa， and provide strong support for China-Africa solidarity against Covid-19 and the economic recovery through all-round cooperation in trade， investment and aid. The second one is to firmly support African countries efforts in dealing with the debt problem， which will be a major problem faced by them after the pandemic. China should firmly support African countries through bilateral， multilateral and third-party cooperation to reduce the risk of African countries debt problems. The third one is to actively deepen international cooperation. International financial institutions are the leaders of international debt management， while China is a new important participant in international debt management. Chinas participation in the debt relief for Africa provides China with a significant opportunity to exchange and cooperate with conventional debt management mechanism on a regular basis. The international community will have a better understanding of Chinas foreign financing and lending policies， while China can better understand and grasp the principles and norms of international financing and debt management， so as to accumulate useful experience for the healthy development of Chinas foreign financing and debt management in the future.