Committee on Development Ordinary meeting
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DEVE European Parliament
Follow its sittingsPenelope Hawkins
So what we, the story here is if you look at the shaded part, what you can see there is that we have dark blue bars which are interest payments and the pale blue bar which of course is net new lending. So that would be new lending originated to a developing country less what they are repaying in debt service to settle old debt. And basically what you see here is for the past three years interest costs have exceeded net new lending. So every dollar of new net lending has simply gone out in interest repayments.
And of course at the same time we have this collapse of official development assistance. So it started to fall in 2023, it fell by a further 9%, sorry, 9% in 2024, 23% in 2025. It is expected to fall slightly further again in 2026. And of course as you have already remarked, Chair, the concern is that the ODA that is coming forth is of course is in the form of interest-bearing loans rather than grants, and this is particularly problematic for least developed countries. Now we have focused on the fact that if you look at public debt, domestic debt is an increasing share of that.
The problem is that it does come at a premium.
While of course external debt comes with the additional risk of exchange rate changes, the domestic debt itself is more expensive, tends to be about 250 basis points more than what countries can access external debt on. And of course at the same time if we look at the weighted average here of interest rates on public debt in developing countries, so here we are including both domestic and foreign debt, you can see here that that dark blue line representing developing countries' interest rate charges excluding China is around twice that that a developed country would pay. Now the problem is is that if this continues, if this higher for longer trend that has been been talked about quite extensively continues, the problem is is that of course any new debt that is being rolled over will be more expensive than in the past. And so this continues to exacerbate some of these cycles that we've already shown. In our cost of capital report we showed that if it was possible for developing countries to originate debt at the same rate as developed countries, they could save around 500 billion dollars each year in interest cost and that of course is a phenomenal amount of development opportunity including feeding 1.6 billion children on some kind of school feeding scheme, allowing for 1.3 million primary healthcare centers to be built and producing almost 1000 gigawatts of energy.
So where are we now? So we, the point that we're trying to raise here is that developing countries are facing many similar challenges to some countries in the EU. Servicing the debt has become more and more expensive, and that of course reduces the capacity to have fiscal support for developing and climate adaptation. But of course developing countries are paying a premium, and most of the outcomes that I've shown you here are a consequence of influences and actions that developing countries simply do not have control over. They are not responsible for the dramatic reduction in ODA, reduced access to concessional finance, the higher yields on sovereign bonds, particularly from this latest conflict in the Persian Gulf, and of course they have much less effective access to financial safety nets.
I don't need to tell this committee, of course, Africa is one of the few places where in fact there is no liquidity safety net. So the higher for longer rates are really creating very negative influences, and we're concerned about the impact on development progress. This is my last slide.
What do we think needs to be done? There are a couple of things here. You've already mentioned access to swaps and other liquidity arrangements, both multilateral and regional, so that developing countries can actually address short-term liquidity challenges quickly, at low cost, and without excessive conditions, so they don't become structural debt doom loops, if you like. And then also, of course, increasing access to affordable long-term concessional finance available from both multilaterals and bilateral lenders is, of course, exceptionally important. It's important to know that while multilateral lending has, in fact, become very important in, of course, external transfers to developing countries, although the stock of that lending is, in fact, not pro-cyclical, the cost is, because, of course, it's dependent on costs in other markets.
And then we really think there needs to be more on the part of developing countries, a national level focus on improving the quality and effectiveness of policies and institutions to reduce risk premiums. There's a need to communicate more effectively with investors, manage debt better, and of course in this way reduce borrowing costs. And then finally we think there is space for continued effort on the collaborative front. There are different things that can be done. The first thing of course is improved capacity.
The EU has for a long time been a supporter of the Debt Management and Financial Analysis System or DMFAS, which is a debt management program in which allows now this year 65 developing countries to manage their debt, record it, and report it to international financial institutions such as the World Bank. And then also we think that there is space for the borrowers' platform to facilitate peer learning, knowledge exchange, and a stronger voice for borrowers. Thank you very much.
Barry Andrews
Well thank you very much, Penelope, very interesting and yes, it corresponds with some of what we've heard so far, so that's very good to hear that. Now we are also joined online as I mentioned by Ms. Catherine Mutia from AFRODAD, an expert at the African Forum and Network on Debt and I we can see you now, Mutia, I hope you can hear us and see us.
You have the floor for 10 minutes.
Catherine Mutia
All right, thank you so much, Chair, and thank you Penelope for opening up the discussions and the context of the debt situation that you're seeing not only globally but specifically for low income countries. I'll just maybe start by introducing myself. My name is Catherine Mithia and I lead work on sovereign debt management at AFRODAD as the Chair has mentioned, which is in full the African Forum and Network on Debt and Development. And my presentation will focus on, you know, the debt related commitments made at the Sevilla FFD conference and the African civil society perspective on the way the European Union could respond to the grain debt crisis, particularly for low and middle income countries. And maybe I'll start with unpacking some of the numbers and forgive me if I repeat what Penelope might have said.
But my, the numbers I'll focus mostly on Africa's debt context, and just maybe start by saying that, of course, Africa's debt crisis has really reached a critical tipping point, and it's now an issue of development and human rights crisis. Currently, the public debt for Africa has nearly reached 170% increase in the last decade or so, which has reached approximately $1.8 trillion. And more than half of the continent is actually in debt distress or at high risk of debt distress. And in recent statistics of the IMF's low-income country debt sustainability framework, actually 33 African countries are in debt distress or at risk of debt distress. So that's actually half the number.
And in just short of two years since 2024, external debt service repayments have increased from $84.4 billion to now projected $90 billion in 2026.
And if you add this to the fact that Africa loses approximately $88 to $90 billion annually in illicit financial flows through tax evasion, corruption, or even money laundering, then you can see the statistics are very stark against Africa. And why is this happening? And I think Penelope has touched a little bit on this. One is that we're seeing a dramatic increase in the last decade of commercial debt, especially bonds and private loans, including Eurobonds, which has risen to 43% from 26% since the early 2000s. And then we have bilateral lending falling from 52% to 25% over the same period.
This shift matters because when it comes to issues of restructuring, especially commercial debt, it becomes harder to coordinate in times of debt crisis. And we've seen that, especially during the COVID-19 period, and I'll maybe get into that later in my presentation. And like Penelope has also mentioned, Africa is now contending with the rise of domestic debt.
We're having now African governments raising half of their financing domestically. And while this is not necessarily a bad thing, and like Penelope has said, it does come with a real cost. The average domestic debt, the average interest rate is actually 8.8% as of 2024, which is even more expensive than concessional external finance, and in some cases, in some countries, their own Eurobonds. And if you look at the debt, rather the investor composition of domestic debt, it's usually held by local banks or pension funds, which means if there's a case of domestic default, it carries the risk of financial instability to citizens' savings and can actually have reputational risk to the country.
And just the reason that also Penelope has highlighted, the reason why we are seeing this trend rise in domestic debt is that borrowing in international markets has become very expensive and African countries particularly face higher borrowing costs than anywhere else in the world. In fact, in a UNCTAD report 2023, bond yields for African countries since 2020 have averaged close to 10% compared to countries like the United States of 2.8% or even in the Euro area, which is about 1.8%. Averagely, this means that African countries are paying 3.5 times more than the US and European countries. If you combine that to the challenge of subjective ratings that African countries endure, it means African countries, according to a UNDP study, is losing $74.5 billion. And as Penelope has also pointed out, the cost of financing is rising because even the cost of concessional finance continues to narrow.
And maybe I'll give the example of Zambia and how it got to the debt situation during the COVID-19 period where it defaulted. In 2011, Zambia was actually reclassified from low-income to low-middle-income status. And in the same year, it received its first credit rating as a vote of confidence, opening it up to the international commercial Eurobond markets. But from the research that we've done, looking at Zambia's debt history, the default and restructuring, this shift because of reduced concessional access and which accelerated Zambia into market borrowing, which really did not generate sufficient returns from the projects it used the money for, it really led to the default of 2020, becoming the first African country to default on its Eurobond. So that's in just a snapshot Africa's debt crisis.
And this is just a smaller picture of the bigger issue. And if you look at the human cost and the debt relief mechanisms available, the restructuring mechanisms, the global debt restructuring mechanisms fail to provide meaningful and timely debt relief. And here I refer to the G20 Common Framework, which is the existing global restructuring framework, where only four African countries have actually sought treatment.
I know you're all familiar: Chad, Zambia, Ghana, and Ethiopia. But research has shown that out of the 184 billion dollars combined of debt treatment across these four countries, the framework only managed to reduce debt stocks by only 7%, which is about 13 billion dollars. And from our research as AFRODAD and other debt justice organizations, it shows that every one of the four countries that sought relief actually took average of three to five years to even reach a preliminary resolution. And official bilateral agreements remain enormously unsigned. And then it takes many years for the deals to be announced.
And the depth of the relief, which is the main challenge delivered, has varied differently depending on the bargaining power of individual creditors rather than the needs of the debtor country. And again, through this debt restructuring framework, it's accompanied by deep austerity, sorry, and fiscal consolidation.
Why do I say that? Because with the IMF programs that are usually taken up as part of restructuring, it entrenches patterns that we've observed of structural and seemingly endless dependency, which has contributed to the deepening of the debt burdens for African countries. And for example, if you look at Ghana as part of its debt restructuring program, they had an IMF-backed sectoral structural reforms which needed it to limit public wage bills. And this created a threat of teacher shortages and restricted teacher training allowances. And this has effectively led to a teacher deficit exceeding 30,000 in 2025 because of a hire freeze that happened at that time.
So the lack of sufficient or timely relief has even led to the decrease of investments in public and social services for African governments. And as Penelope has said, is diverting resources to debt servicing.
And I maybe mention some statistics here that UNCTAD has also done is that 791 million people live in Africa in countries where governments spend more interest payments than on public health. So all the, or maybe nearly a third of all collected revenue across the continent is now committed to debt service. So if you look at now the impact of human debt, of the human crisis because of debt, the austerity issues and also the lack of proper restructuring frameworks, you can see that addressing Africa's debt crisis has become even more difficult. And during the severe FFD forum last year, where conversations were around how do we create a better framework or a debt architecture that addresses these structural challenges, there were calls, especially from the African group, for a binding multilateral debt restructuring mechanism.
However, this was diluted later during the main negotiations and adoption, which led to some kind of text allowing for, you know, processes or the introduction of an intergovernmental process towards reforming or addressing the debt gaps within the debt architecture. And that is within paragraph 50F of the Seville commitment, which is the outcome document from the FFD conference, where we have now a reference to initiating an intergovernmental process towards reforms of the debt architecture.
Barry Andrews
Sorry, Catherine, we would ask you to make some concluding remarks because we have some time constraints, and of course we'll come back to you with questions. So if you could make your concluding remarks, thank you, Catherine, sorry to interrupt.
Catherine Mutia
All right. Thank you so much, Chair. So maybe I'll refer to, as this process of reforms of the debt architecture, the African Union actually held a conference last year, the African Union Debt Conference, which led to the common African position on debt, which is a unified continental framework to demand an equitable development-focused global financial architecture.
And again, part of those demands is for a UN framework convention on sovereign debt. And why is this important to members in this committee when you're having this exchange? Just to mention that while current mechanisms like debt-for-nature swaps have been provided or advanced, they do tend to have heavy investments, or lend heavy investments, which not necessarily address the underlying crisis. And if you consider Africa's structural challenges, Africa's debt structural challenges, it is because of accumulated debt burdens that reflect the cyclical factors that are usually responses to exogenous shocks, but they tend to have a direct consequences of the structural asymmetries in the global financial architecture, including the credit assessment methodologies and then the debt resolution mechanisms.
So in our proposals as African civil societies, in the short term is to ask members in this committee to consider pushing for comprehensive reforms of the G20 common framework, and maybe I'll speak more a little bit about that later. And in the long term, medium to long term is to consider as part of moving severe commitments within paragraph 50F is to support the start of that intergovernmental process towards UN framework convention as a binding multilateral sovereign debt resolution mechanism. I'll stop here and I welcome the exchange. Thank you.
Barry Andrews
Again, thank you and apologies for interrupting Catherine. Thank you very much for that, very interesting and both presentations. I'm sorry there aren't more people here to hear this, which is a really warning signal I think for what is gathering and it seems to me to be a perfect storm where there's a mutually reinforcing problems beginning to accumulate and very clearly set out today by both our speakers. So let's open it to the floor for any questions and comments for the speakers. So Udo, I think we'll start with you.
So Udo Bullmann for the S&D group, you have the floor.
Udo Bullmann
Thank you very much Barry, and a great thank you to our special guests, excellent contributions, food for thought and both of you underlined the gravity of the situation, the seriousness, and Barry echoed that already.
Listening to that, and something is new, other facts we have known already, always you question yourself two levels, two different areas of questions. First of all, the macro level. What concretely, and Catherine started with that, could be you as experts demanding from the European Union? What is your expectation what the European Union could do and should foresee in the next steps policy on global debt reduction and reform of structures, financial structures? And the other question is a micro question.
Having heard, and this is well known also about the amount of illicit outflows from Africa, the very question is, is there any possibility in which we could at least parts of them bring back, keep in the countries, the respective countries, to create something like revolving funds? Because what we understand is that financial sovereignty is a goal. And we heard from Penelope that both is difficult because foreign lending is risky according to the currency disturbances and internal one is too expensive.
So how can we create by domestic means or by the support of the international community more creative, innovative revolving funds that keep the profits, that keep the money in the countries where they belong?
Barry Andrews
Thank you, Udo. So let me make a few comments and ask a few questions. Sorry, Marc wants to say something, so Marc Jongen for ESN, you have the floor, and we'll come back after that.
Marc Jongen
Thank you, Chair. Don't you want to take the floor yourself before? Okay, yeah, thank you. Thank you very much. I'm going to speak in German.
Vielen herzlichen Dank für Ihre Präsentation.
Etwas mehr als ein Jahr ist es her, dass der Sevilla-Report vom EU-Parlament abgelehnt worden ist, und das aus gutem Grund. Ein pauschaler Schuldenerlass für Entwicklungsländer, wie er dort gefordert wurde und wie ihn Teile des Parlaments nach wie vor verlangen, würde unseres Erachtens die strukturellen Probleme, die hinter der hohen Zinsbelastung stehen, nicht lösen. Oft genug waren es billige Kredite chinesischer Staatsbanken, die zu Fehlinvestitionen geführt haben und einen großen Anteil an der hohen Staatsverschuldung der Entwicklungsländer haben. Ein Beispiel dafür ist die Bahnstrecke Mombasa-Nairobi in Kenia, die durch die China Exim-Bank mit 1,6 Milliarden Dollar bei einem ungewöhnlich günstigen Zinssatz von 2 % finanziert wurde und die nun nicht genug Einnahmen erzeugt, um die Schulden zurückzuzahlen. Der kenianische Staat musste deshalb 2025 einspringen.
Wenn die EU nun dieselbe Strategie fährt, vergünstigte Kredite ausgibt und nicht genug auf Rendite und wirtschaftliche Tragfähigkeit achtet, trägt sie zur Verschlimmerung der Schuldenkrise bei und es steht zu befürchten, dass am Ende die europäischen Steuerzahler für die Kreditausfälle haften müssen. Wir stehen mit dieser Einschätzung nicht allein, der Internationale Währungsfonds fordert in seinem aktuellen Bericht Strukturreformen, mehr fiskalische Disziplin und Förderung eines vom Privatsektor getragenen Wachstums als Ausweg. Nur eine solide Fiskalpolitik und funktionierende Institutionen können laut IWF politische und wirtschaftliche Unsicherheiten verringern, Korruption abbauen und zu höherer Effizienz beitragen. Das sind die Voraussetzungen für ausländische Investitionen, die Gewinne abwerfen und sich selbst tragen sollen. Meine Frage: Wie kann die EU Fehlinvestitionen verhindern und sich auf ökonomisch nachhaltige Projekte konzentrieren und damit verhindern, dass mit Schuldenerlassen und Kreditvergünstigungen das Problem den europäischen Steuerzahlern aufgeladen wird und stimmen Sie insgesamt der Beschreibung, die ich hier gegeben habe, zu?
Vielen Dank.
Barry Andrews
Yeah, well, yes. Okay, let me ask a few questions. So, I mean, just the first point I want to make is that 20 years ago, 25 years ago, there was a massive public campaign called Drop the Debt. And you know, there were great celebrities who backed it and who attracted a huge amount of media attention. And young people were filling their email outboxes with campaign messages to decision makers and Drop the Debt was something that couldn't be ignored.
And it led to some very, very significant changes and reforms and restructuring and international effort to try to address the issue in the late 90s and in the early 2000s.
Now there is complete silence. There's no campaign at any level apart from the work that our witnesses are explaining today. There's no civil-based, you know, popular campaign to change these circumstances. And that's why I think what we've heard today is a really important early warning alarm for what is actually happening in the developing countries. And it's a shame that this issue is does not attract any public campaigning and attract advocacy beyond existing NGOs.
That's a real issue. And it's a shame, you know, and we're going to end up with the downstream consequences of this quite probably if we don't take it seriously. So that's a real problem that we have. One of the issues here as I see it is the OECD DAC, what they call grant equivalent, which is loans that are not at market rate, but they're concessional loans. And they're from, you know, development banks and they're from the World Bank.
And but one of the big issues here is the risk appetite of these lending institutions. They want to retain their AAA rating. They want their money back.
Their default rate isn't that different from market lending. And so when we look at this whole question of risk appetite of development banks and what the OECD classify as a grant equivalent, I believe that's an area of absolutely urgent reform and that we recognize this is one of the sources of this major increase in the in the cost of debt at the moment, which has major downstream consequences, as I said. So we are dealing with this in the European Parliament right now through the Global Europe instrument because we're seeing that move away from grants to loans. We're moving away from into high levels of guarantees and loans in the common provisioning fund in the Global Europe instrument. And that is where the rubber hits the road.
This is the actual plumbing of how the European Union is potentially contributing more fuel to the fire that we've just heard all about if we don't take ourselves much more seriously in how we address the common provisioning fund in the in the Global Europe instrument. So it's a really live issue for us. I'd like the witnesses maybe to address a question which is around Chinese debt because we saw in Penelope's presentation developing countries and it feels weird to classify China as a developing country when you consider that a lot of the debt is Chinese.
But it's important that we distinguish between commercial debt and institutional debt from China. And as far as I understand the you know the private lending from China is much greater than state or state-owned enterprise lending. So I'd like you to just address the question of Chinese debt and where it fits into these issues and the extent to which commercial Chinese lending is subject to any of these restructuring discussions at all because I'm concerned that it's not the case that there is much of it actually happening. A further point I wanted to maybe for Catherine to just explain in a little bit more detail the debt-for-nature swaps. You you sort of began to explain why it was there are limitations to its utility and you might just go into that in a bit more detail.
And finally and this really one is for Penelope is is on trade and and the effect of tariffs and we know that China has dropped tariffs on almost all of its trade with Africa in recent years.
So the effect of EU tariffs on African trade in terms of public finances is obviously quite significant. You've already demonstrated what would happen if interest rates were the same for developing countries as they are for developed countries. But what would be the impact of the same tariff treatment as we've had with between China and Africa if that happened at a European level? And I know there's massive sensitivities around that, but again, if you could add that into your consideration. So unless there's anything else, we'll move to the responses and then we'll hear from the Commission after that.
So with your permission, Penelope, we'll say...
Penelope Hawkins
Thank you very much. Thank you very much for these questions. They're very important and maybe also a little provocative. But I think it's very useful for us to perhaps, if you will allow me, to just think back about this very case that you describe, Chair, this idea of the drop the debt, the Jubilee campaign, the HIPC work, which was really aimed at highly indebted poor countries.
Then as a sister act to that, there was work that was done around the multilateral development banks also trying to promise to reduce certain debt. Now, the problem always with reducing the debt is of course the the outcome may provide some relief, but in the context of a huge development need, we always had to know that debt would increase again. So it was we could not have assumed that okay, we forgave the debt one time and therefore there will no longer be debt, it will no longer be an interesting instrument. I mean that's just unrealistic. There is no country, there is no European country that has developed without debt and in some countries that have developed in other parts of the world, for example Japan, it has come with massive aid as well as debt.
So this idea that we should be living in a world where there is no debt is of course also unrealistic. We know we have to have debt. The big problem that really came out I think that has become an unintended consequence of the forgiveness of debt at the turn of the century in the 2000s was that in fact it did lead to many important bilateral creditors stepping away.
And the data are very stark. Even in 2010, which is now 10 years after the real push for, you know, forgiveness of debt, in 2010 for developing countries bilateral debt made up a quarter of their exposure. By 2024, which is now just, you know, 15 years later if you like, it's reduced by half to 12%. So, and the Paris Club, which is perhaps most pertinent to this grouping, their exposure to developing countries fell from 17% to 6%. So the reality is that those really good relations of bilateral concessional debt, debt that allowed for country ownership, that really allowed for potential good development paths, that has been pulling back.
And instead now when you look at non-Paris Club, I mean non-Paris Club of course is as important as Paris Club.
And China's growth has doubled, okay, since 2010. So China was 2% of exposure to developing countries, it's now 4%. I mean sometimes I think in our heads we think it's bigger than that, but at 4% that is still really huge. It's coming up to be two-thirds of the entire Paris Club exposure. So your question about, you know, is this commercial debt, is it governed by restructuring, and the answer is simply no.
It's not governed by restructuring, unless you're prepared to understand restructuring as extending the term, because that's all it is. It will never involve a haircut. Although as Catherine has pointed out, even the haircut from the G20 was actually quite small.
So, I think this is such a new space that we're working at. The point that was raised about, you know, what are your expectations from the EU, where do you think there is space? And I really think this, it is important not to continue to step back, because the reality in this world is that some other country or force will step forward. Just as we've seen with this bilateral exposure. And what does that mean for development?
Because the problem is, is that if all loans are now about increasing the potential for large powers to extract benefits through critical minerals, without fully understanding what is the development need within countries and perhaps neglecting the country ownership, we will see more and more fragile states develop. Because although we sometimes like to indulge ourselves in thinking that security is separate from development, it simply isn't. We have so many examples around Africa, we just need to look at Northern Mozambique to see very, you know, very explicit examples of that. Parts of Northern DRC, all of these are highly contested areas where there is something to be had from the country, but in fact, it does not, extraction thereof does not lead to development.
With regard to your point about illicit financial flows, Mr. Bullmann, the issue around here is really, really crucial. There're two things. You've raised something that I think is important. Something I haven't yet mentioned is how much growth has declined in developing countries in the last couple of years. So if you looked at growth in developing countries between 2015 and 2021, it was on average 7% per annum.
I'd like to quote Keynes. He says when enterprise is afoot, when there is business that is being done and it's being done to develop a country, then good things happen. Okay, right now, the denominator that we always use for debt to GDP, the average growth of developing countries is now 2.1% since 2021 to 2025. So we simply aren't growing anywhere. And so the reality is is that the answer to both of those questions, I think, Mr. Bullmann, is growth.
If there can be growth in these countries supported by responsible partners as the EU has historically always been, then there's potential for countries to grow, to in fact grow out of some of this debt burden.
And also, once that starts to happen, the incentive for illicit flows out of the country massively reduces. And then finally, I know you've said I can't say any more. Can I just say one more thing? And that is that when we look at this, your question about tariffs, the issue around tariffs is quite massive. And I'd like to just bring up an example of the London Agreement during in 1953.
So at that time, as you recall, post the Second World War, it was agreed by the superpowers at the time that Germany's debt would be halved and that there would be this huge effort to restrict the extent to which Germany would have to repay through export earnings. And so there was a construct in the London Agreement that there should not be, Germany should not have to pay away in servicing its debt more than 5% of its export earnings. Well, frankly, it never got to that.
But right now, least developed countries in some, least developed countries on average are paying away 17.2% of their exports to service their interest. Now add tariffs to that and remember also that in the London Agreement, the superpowers of the time said, "We will buy German products so that they can have an export market and so that they can service their debt." If you're adding tariffs to the interest burden, countries have nowhere to go.
Barry Andrews
That's fascinating economic history and very, very worthwhile to hear. So, Catherine, we'll come back to you there. There's one or two questions for you, if you can hear us and see us. You're back online. Yeah, great.
Thank you. You have the floor for, let's say, five minutes, if you don't mind. Thank you, maximum.
Catherine Mutia
All right. Thank you. Penelope has done an amazing job answering some of the questions. So, I'll maybe take two, and that is on the debt-for-nature swaps and the Chinese debt question and how European countries can consider the investment working so that we don't have the situation of this Chinese debt issue that has really been part of a major debt conversation in Africa, or Africa's debt in general.
So maybe on the debt-for-nature swaps. So the point from my presentation, while debt-for-nature swaps or debt swaps have been advanced as a solution to addressing the debt crisis for African countries or for low-income countries, it has come up with a lot of challenges, at least from the research that civil societies, African civil societies and also within Latin America, and I know for organizations like Eurodad, civil society organizations like Eurodad have made research around that, is to say that they are not necessarily provide enough relief to be considered as an alternative, or to provide the necessary fiscal space that African countries desperately need.
So look, maybe I'll give an example of Gabon, which was the first country to take up the debt-for-nature swap. This was in 2023. And the transaction there was for it to issue a 500 million dollar bond, a 15-year blue bond, and to replace the old bonds, meaning it just refinanced the commercial debt stock. And the debt was not necessarily cancelled. And if you look at the total savings that was done, it was only 4% of Gabon's total sovereign debt that was reduced, right?
If you look deeper into those transactions, a lot of the transactions are conducted by, you know, investors outside public or government control. So in the deal for Gabon, the deal was brokered by the Bank of America, sorry, and it took up 30% of the profits there. And then the issue of transparency of some of these contracts, it's very hard to get some of these contract details, right?
So it's you cannot say for sure what the saving has been for in this debt-for-nature swaps because of the issue of confidentiality clauses, confidentiality clauses. And if you look again Gabon, it was set up by a company registered in Delaware called the Gabon Blue Bond Master Trust. And because of leaked documents, we are able to get information that it actually cost Gabon 455 US million dollars to buy the bond notes of the face value of 500 million dollars and only made a saving of 64 million out of the initial amount. So you can see the savings out of of these debt-nature swaps are not necessarily providing the necessary fiscal space. And in the end, Gabon is going to be in a situation where it's going to borrow more.
And that's why we are saying debt-for-nature swaps are debt-inducing rather than debt-relief instruments because of the typical way in the way they work where it's new bond issuance rather than outright cancellation which is what African countries need. And then for Chinese debt, it's also an issue of transparency and the question that the honorable member has posed, giving the example of Kenya. Yes, there was that challenge of, you know, the deal not being conducted outside the purview of public participation. There was a lot of transparency issues. A lot of these contracts were not available and only later for it to be discovered that it was a very highly, you know, the cost of that project was very high compared what it was actually meant to cost and which has led to now the debt repayment that actually the country is enduring at the moment.
So for Chinese debt, especially on the commercial, it's an issue of transparency where it has a lot of again non-disclosure clauses.
And why as Penelope has made in her presentation on the domestic side or national level for countries, there have to be increased reforms of debt management frameworks, especially on the transparency and accountability aspects. And also as AFRODAD...
Barry Andrews
I'll have to ask you to conclude, Catherine, as soon as you can. Thank you.
Catherine Mutia
All right. As AFRODAD, we do have the African Borrowing Charter that we use to advance provisions of proper debt management for African governments to avoid such situations. But in the case of whether the investments for European countries, really it's an issue of the nature of debt contracts and it brings up the questions of responsible lending and borrowing, which UNCTAD has proposed for a very long time and which again brings to the questions of the rules and of debt of borrowing and lending within the current international financial architecture, which opens up gaps for such limitations. And that's why we are calling for this UN framework convention on debt as a real ask for reforms.
Barry Andrews
Thank you, Catherine. Sorry to cut across you, we've lost the trailer, sorry. Didn't mean to cut across her because it's very, very good and but unfortunately very strict time frame.
But I do want to introduce our final speaker who is, welcome back to the committee, Silvina Ilieva, who is deputy head of unit at macroeconomic analysis, fiscal policies and budget support at DG INTPA. So Silvina, please, you have the floor for three minutes.
Silvina Ilieva
Thank you very much, honorable chair. Indeed, it's a pleasure to be with you and I will try to be very short in our reaction, but I'm thankful that the Commission is allowed to react to this very important matter because as our guest mentioned, Mrs. Hawkins, there is no growth without debt. So unless we understand this issue and we tackle it, we will never find a way around it. Indeed, although the immediate risk of widespread debt risk has diminished since COVID-19, new factors have emerged and we all know them and they impact significantly public budgets: all the geopolitical tensions, the conflicts, security threats, disrupted value chains and volatile energy prices that brought to inflation and the tariff wars that we mentioned.
These additionally elevate the risk premium on the debt markets and hence the debt borrowing costs increased. However, since 2022, liquidity pressures have been mounting and in particular since the global interest rates rose significantly, that pushed countries in a period of heightened refinancing needs. What is important to mention here that this period also coincides with some converging repayment cycles where grace periods of large-scale multilateral support extended during COVID have expired and non-concessional loans now need to be repaid or hence refinanced. Also, the Debt Service Suspension Initiative also deferred bilateral payments in 2021, but it's now unwound between 22 and 27 and also substantial Chinese lending of the 2010s is reaching maturity.
All this, coupled with wave of bonds issuance made in the same decade under more favorable conditions than we can refinance them today, are actually increasing the revenue that is needed to cover this to two to three times higher than a decade ago. So the European Union remains committed to the international effort to address debt vulnerabilities both in low and middle income countries, and it's essential that our support is sustained and targeted in manner. Thus we are committed to the financing for development agenda and we support the Sevilla follow-up process in strengthening the international debt architecture. And we have four priorities here that are important that we all support. Firstly, the G20 common framework that covers 73 countries and remains for us the primary mechanism for coordinated sovereign debt restructuring.
The recent publication of a template of the memorandum of understanding for debt treatment is an important G20 achievement.
I would like to underline that although in the Sevilla outcome document indeed there is a reference to an intergovernmental process, we do insist that we should exploit better the existing tools because we need focus, we need to improve them and get them to deliver first before we put our efforts on a parallel process. Secondly, we would like to see better coordination of debt treatment also for middle-income countries that are not covered by the common framework. The recent cases of Sri Lanka and Suriname tell us that maybe G20 could come up with common principles to cover them as well. Thirdly, as our UNCTAD colleagues mentioned, liquidity, managing liquidity challenges and avoiding debt is important. The World Bank and the IMF three-pillar approach provide the right tool for countries that are under liquidity pressure rather than facing insolvency.
So strengthening domestic resource mobilization, ensuring external financial support and reducing debt service burdens is relevant in that case.
And lastly, better debt transparency and data. That's why we will remain a full supporter of the DEMFAS. We welcome the new edition of DEMFAS 7, and we are also going to continue our support for the World Bank Debt Management Facility alongside participation in the debt sharing exercise. We welcome, of course, a stronger borrower voice, and that's why on the borrower's platform, that we welcome the stronger borrower coordination is a complement to the G20 common framework, not as a substitute, and we remain committed to support through Global Gateway all growth activities so we could address the debt needs on the positive side as well. Thank you very much.
Barry Andrews
Thank you, Silvina. I really appreciate your input, and of course our guests as well, our other guests, I should say, Catherine and Penelope. And just to, in my defense, say that I wasn't suggesting that we should abolish debt. I was merely underlining that the absence of any popular awareness of these issues comes with a political cost. So, that's the issue I wish to make.
So, that concludes this item of our agenda. We will go straight into coordinators with the meeting which is in camera. So, if you're not part of the coordinators' meeting, we'll have to ask you to leave the room, and we'll resume with the coordinators immediately. Thank you.
Okay, we'd better get started because we're late, very late. Okay, so we'll start with our coordinators' meeting. Ouais. That's better. All right, so you want to raise something?
Yeah, okay. Yeah, that's fine. So item one is the adoption of the draft agenda. If there's no proposals, we can move on to item two.
So item two is the chair's announcements. Firstly, on the Sakharov Prize 2026, the COP decided at its meeting on the 1st of July to postpone the vote by the AFET and DEVE committees from the 15th of October to the 19th of October in Strasbourg. So a date for the diary. Secondly, on our oral question on the Global Health Strategy...
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