{"id":10792,"date":"2022-02-21T08:16:44","date_gmt":"2022-02-21T08:16:44","guid":{"rendered":"https:\/\/www.africa-press.net\/mauritius\/all-news\/can-china-and-the-paris-club-work-together-in-serving-africa"},"modified":"2022-02-21T09:24:13","modified_gmt":"2022-02-21T09:24:13","slug":"can-china-and-the-paris-club-work-together-in-serving-africa","status":"publish","type":"post","link":"https:\/\/www.africa-press.net\/mauritius\/all-news\/can-china-and-the-paris-club-work-together-in-serving-africa","title":{"rendered":"Can China and the Paris Club work together in serving Africa?"},"content":{"rendered":"<p><span style=\"color: #ff6600\"><strong>Africa-Press &#8211; Mauritius. <\/strong><\/span>The coronavirus pandemic has sparked off the first recession in 25 years in Sub-Saharan Africa, the World Bank says. Amongst other consequences, Covid-19 has \u2018exacerbated public debt vulnerabilities\u2019.<\/p>\n<p>Though the Paris Club was previously the sole institutional interlocutor of African states\u2019 debt, China\u2019s rise as a global power is proving to be a challenge.<\/p>\n<p>Will differences between these two powerhouses have consequences? What are the implications for the countries benefitting from China\u2019s financial assistance?<\/p>\n<p>The Covid-19-related economic crisis \u201chas brought a signi\ufb01cant risk of debt distress in several African countries by exacerbating vulnerabilities that have built up over the past decade\u201d, according to a BNP Paribas paper titled \u2018Dealing with Africa\u2019s Risk of Debt Distress (2021)\u2019.<\/p>\n<p>According to scholars Francisco G. Crneiro and Wilfried A. Kouame, the need for public funding has doubled the debt to GDP ratio \u201c in more than a quarter of sub-Saharan African countries\u201d.<\/p>\n<p>Since the 1950s, the Paris Club has regrouped main creditors and financial institutions involved in debt restructuring, providing both policy and financial tools.<\/p>\n<p>Although China is not a member of the Paris Club, it is Africa\u2019s first bilateral creditor, and this has become a challenge. New trends As of 2018, China held 21% of the public and publicly-granted debt in 38 African countries eligible for the initiative.<\/p>\n<p>\u201cWe are facing an unprecedented situation for African countries: they have a reimbursement framework with Paris Club creditors and another framework with China. The two are very different and that is the major challenge.<\/p>\n<p>China\u2019s loans through its specialised banks (such as Exim Bank) are part of its Belt and Road Initiative (BRI) policy,\u201d Estelle Prin \u2013 China analyst, and lecturer in geopolitics at Sciences Po Lyon \u2013 tells The Africa Report.<\/p>\n<p>\u201cThere is little financial information available; sometimes the borrowing countries might disclose them, but China hasn\u2019t.<\/p>\n<p>The issue for Paris Club creditors is evaluating the debt level of countries asking for relief or suspension,\u201d she says. However, China\u2019s adhesion to the G20 Framework might be a step towards the Paris Club terms.<\/p>\n<p>\u201cAs long as China associates itself with the G20\u2019s Common Framework [\u2026], the debt relief it provides in the coming period is likely to be closely aligned to the relief provided by Paris Club members because of the \u2018comparable treatment\u2019 principle incorporated in the Common Framework,\u201d Lex Rieffel says in a paper titled \u2018Normalising China\u2019s relations with the Paris Club\u2019.<\/p>\n<p>This entails similar treatment of the indebted country by creditors. It is, however, difficult to imagine China giving up its preferential contract clauses. Geopolitical battle<\/p>\n<p>\u201cBy underscoring the issue of Paris Club clauses, the Western countries are actually attempting to bring China into their framework of debt rules, while taking a step back, lowering lending limits, and, at the same time, \u2018softly absorb[ing]\u2019 the potential influence of China\u2019s foreign lending with their framework of rules, and share in the reputational benefits of China\u2019s sovereign lending,\u201d the Chinese Embassy in Comoros said.<\/p>\n<p>Indeed, it is less of an economic issue and more of a political one. What is needed is perhaps a more conducive international architecture of sovereign debt, coupled with a shift in the governance system in Africa<\/p>\n<p>\u201cToday, the United States government is one of the smallest creditors to low-income countries, with just $370m in outstanding claims.<\/p>\n<p>China, on the other hand, with over $31bn in outstanding claims to the Heavily Indebted Poor Countries (HIPC), is a bigger creditor than all other government creditors combined,\u201d said Scott Morris, in his testimony before the US House Subcommittee on National Security, International Development and Monetary Policy.<\/p>\n<p>\u201cIt will be a question of which terms prevail. The Paris Club cannot compete with China\u2019s expense credit capacity. Within the Paris Club, there is a loan cap on export-import banks (around 12%).<\/p>\n<p>China, not having adhered to those limits, can go as far as it wishes \u2013 sometimes [up to] 50% \u2013 they want to [lend] freely,\u201d Alexander Demissie, founding director of The China-Africa advisory, tells The Africa Report.<\/p>\n<p>China also seems to have a varying and evolving approach. \u201cChina is facing its own economc, monetary and financial challenges. This might decrease the amounts it is willing to loan to African countries\u201d says Prin.<\/p>\n<p>She adds \u201cChina\u2019s attitude also varies depending on the context, there are two types of countries. If they have natural resources, such as Angola, they will have high debt-servicing capacities and are less problematic for China.<\/p>\n<p>Poorer countries with less resources and low growth might struggle more\u201d Sovereign bonds and downgrades In response to these challenges, the first joint debt-relief initiative under the G20 \u2013 Debt Service Suspension Initiative (DSSI) \u2013 was created.<\/p>\n<p>Servicing debt includes the interest and principal payments on loans, but also on sovereign bonds. They are issued to raise public funds and repay prior loans.<\/p>\n<p>As 18 African countries signed up for the DSSI in April 2020, many of them experienced a loss of confidence in their markets. At the same time, Fitch Ratings downgraded seven out of the 19 rated sovereign states in Sub-Saharan Africa.<\/p>\n<p>\u201cRating agencies have become discouragers-in-chief and [\u2026] very dogmatic. They are saying, if you go on the path of even considering reprofiling or restructuring your debt, we\u2019ll downgrade your ratings.<\/p>\n<p>These are the same agencies who were giving AAA ratings right before the global financial crisis [in 2008]. They haven\u2019t really modified or understood the realities on the ground,\u201d Zemedeneh Negatu, global chairman of the Fairfax Research institute, said at a Chatham House conference.<\/p>\n<p>Default and restructuring With the DSSI extended until the end of 2021, questions around possible defaults on the continent remain. According to the IMF\u2019s \u2018Regional Economic Outlook for Sub-Saharan Africa\u2019, \u201cnon-resource dependent countries are forecast to see average per capita incomes rise by 21.6% by 2025.<\/p>\n<p>Oil exporters, which are some of the more populous countries in the region, will have no gains in per capita income over this period. \u201d So far, Zambia is the only country to have defaulted on its bond (Eurobond).<\/p>\n<p>Its economy \u2013 which relies on copper production \u2013 and its high debt to GDP ratio (94.5% in 2020) seem to confirm the IMF forecast. However, restructuring through the DSSI might have other motivations.<\/p>\n<p>\u201cThis has nothing to do with Ethiopia\u2019s repaying capabilities, we only have $1bn in bonds which we are servicing regularly.<\/p>\n<p>It is not an issue of bankruptcy or insolvency, it is an issue of gaining additional financing support \u2013 so restructuring \u2013 because that is at the heart of our [Homegrown Economic Agenda] reforms,\u201d Eyob Tekalgn Tolina, Ethiopia\u2019s state minister of finance, said at the Chatham House conference.<\/p>\n<p>Bottom line Though the absence of a clear China-Paris Club agreement might serve African countries benefiting from DSSI, \u201ca two-track pandemic is leading to a two-track recovery\u201d, says Kristalina Georgieva, IMF\u2019s managing director.<\/p>\n<p>What is needed is perhaps \u201ca more conducive international architecture of sovereign debt, coupled with a shift in the governance system in Africa\u201d, says Rabbah Arezki, the chief economist and vice president for the MENA region at the World Bank.<\/p>\n<p><strong>For More News And Analysis About <a href=\"https:\/\/www.africa-press.net\/mauritius\">Mauritius<\/a> Follow <a href=\"https:\/\/www.africa-press.net\/\">Africa-Press<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Africa-Press &#8211; Mauritius. The coronavirus pandemic has sparked off the first recession in 25 years in Sub-Saharan Africa, the World Bank says. Amongst other consequences, Covid-19 has \u2018exacerbated public debt vulnerabilities\u2019. Though the Paris Club was previously the sole institutional interlocutor of African states\u2019 debt, China\u2019s rise as a global power is proving to be [&hellip;]<\/p>\n","protected":false},"author":84,"featured_media":10791,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,6,8,16],"tags":[242,233,245,373,241,446],"class_list":["post-10792","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-all-news","category-files","category-homepage-english","category-twitter","tag-africa","tag-africa-press","tag-africa-press-mauritius","tag-bank","tag-mauritius","tag-world"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.1 (Yoast SEO v27.0) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Can China and the Paris Club work together in serving Africa? - Mauritius<\/title>\n<meta name=\"description\" content=\"The coronavirus pandemic has sparked off the first recession in 25 years in Sub-Saharan Africa, the World Bank says. 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