It's time for a Lusaka Club of Borrowers

African governments need to band together in re-negotiating sovereign debt

Below is a text of a short speech I gave at a meeting of academics, foundations and civil society in New York City in September 2024. We were convened to think through some potential solutions for the sovereign debt crisis engulfing much of Africa and the Global South. I was going through my files this week and realised the speech might make for an interesting post. So here goes.

Good Afternoon! My name is Grieve Chelwa. I am an associate professor of Political Economy at the Africa Institute. Some of my most recent work is dedicated to thinking about the political economy of the African debt crisis. I’d like to share some thoughts on an outline for a “solution” to the current sovereign debt crisis especially as that crisis is now enveloping many countries in my home continent of Africa. The solution I will outline is inspired by closely observing the trajectory of my country Zambia over the last couple of years as it has struggled to speedily resolve its debt on terms that do not jeopardize its long-term aspirations for emancipatory development.

As you all know, Zambia applied to the G20’s Common Framework for Debt Treatment in April of 2021. And It is only in April of 2024, a full three years later, that some type of deal was agreed to between Zambia and its creditors (and as I have argued elsewhere, the terms of the deal are so skewed against Zambia in such a way that the country might very well find itself in another crisis around 2032 or thereabouts).

In the three years that it took to arrive at this “deal”, the country’s macroeconomy has been in a state of paralysis typified by the collapse of the country’s currency, the Zambian Kwacha, which, combined with IMF’s austerity measures, has resulted in a historic cost of living crisis whose burden has fallen on the poor.

Why did take it so long for Zambia and its creditors to agree on some type of debt restructuring plan?

Well, one theory has it that a multiplicity of creditors and their varying interests made it difficult to speedily agree on common terms.

A second theory, somewhat related to the first, has it that Zambia got caught up in a geopolitical tussle between China and the West.

A third theory, which I believe is just as fundamental and has been ignored, is that Zambia’s debts, on their own, were too small for its creditors to be bothered to hurry towards a solution. In other words, we have here the following classic problem of finance:

• if I owe the bank $10,000 and I can’t pay, then it’s my problem.

• But if I owe the bank $100 million and I can’t pay, then it’s the bank’s problem.

And you best believe that in the latter scenario, the bank will be chasing after me rather than the other way round!

So this, in a nutshell, is the thinking behind a solution I’d like to put on the table for further consideration. The possibility of debtor countries coordinating their efforts in a way that rebalances power away from creditors.

African countries collectively owe somewhere between half-a-trillion to just under a trillion dollars in external debt, a non-trivial chunk of global debt markets. On the other hand, the amount of debt that Zambia wanted to restructure was somewhere between $6 to $8 billion, a rounding error for global debt markets. So if African countries coordinated their efforts through a type of debtors’ club or borrowers’ club, I believe that creditors would have little choice but to quickly arrive at a solution and to do so on terms that weren’t discriminatory against debtors. After all, a trillion dollars are at stake!

So I see the problem of the slow resolution of debt as fundamentally one of power imbalances between creditors on the one hand and Southern debtor countries on the other. In the market for sovereign debt, power overwhelmingly resides with creditors at the expense of countries in the Global South.

This idea for such a Lusaka Club or Accra Club or Addis Ababa Club of borrowers, to rival the likes of the Paris Club or London Club of creditors, is not new or even original to me. Thomas Sankara proposed such a “united front against debt” in his famous final speech at the Organization of African Unity in 1987 (before he was taken from us later that year).

Hannah Ryder of Development Re-imagined has for a while been calling for the establishment of such a club. The newly launched Organization for Southern Cooperation (OSC), based out of Addis Ababa, has called for the establishment of a Common Leveraging Union of Borrowers (whose acronym reads CLUB) towards this purpose.

So the idea is gaining some momentum but there is still a lot of work that needs to happen. And here I am thinking about three levels of work that need to take place.

First is at the level of conceptual clarity. That is, building firmer theoretical scaffolding for the existence of such a club. And here we seek answers to questions such as: Can it work? How might it work? When might it fall apart?

Second is at the level of technical and administrative clarity. Is the club to be adhoc and activated in times of crisis? Or Is it to be permanent? If so, where might it be housed and how might it be governed? At the Africa Union? And if we are to think about a club for the Global South as a whole, where and how might it be operationalized?

A third level, and one in which I have the least expertise, is in thinking about a theory of change. How do we get social movements sufficiently behind such an idea so that our governments can move towards establishment (after figuring out levels 1 and 2 above)? Perhaps working with civil society and social movements, we can identify an initial set of highly indebted countries that can pilot the idea and serve as proof-of-concept?

In conclusion, I want to say that such a club does not necessarily need to only focus on the thankless task of renegotiating debt in times of crisis. It can also evolve into a lending club within, for example the African region, especially when one thinks about the absence of a genuine Pan African bank that coordinates, in a just and humane way, the redeployment of funds from surplus countries to deficit countries.

In any case, these are some thoughts that I hope inspire some vigorous brainstorming in the direction of solving a crisis that has hamstrung our people’s struggles for total emancipation.

Thank you!