Drop debt, save lives
Short Read (4-5 minutes)
In November Zambia stopped making debt payments to private lenders, mainly rich hedge funds based in countries like the UK. The country is in a debt crisis after various shocks, especially the Covid crisis which has had a huge economic impact on most developing countries.
Over recent years, Zambia’s public spending has fallen by 18%, and the government spends four times more on debt payments than on healthcare. Finally, in the autumn the Zambian government decided it could no longer keep making high interest payments on its debt and asked private lenders such as Western hedge funds to agree to a debt suspension. They refused, so Zambia stopped paying anyway.
Zambia is one of the more dramatic cases in a wave of debt crises which have been triggered across developing countries. The Covid crisis has seen government income fall dramatically with countries getting less income for the goods they sell and income from overseas falling such as tourism and remittances from diaspora workers. At the same time, health needs have only increased to try to tackle the pandemic.
Jubilee Debt Campaign has shown that 64 countries spend more on debt payments than healthcare. It is part of a global coalition calling for debt payments for poorer countries to be cancelled to enable countries to fight the pandemic and invest in healthcare and economic recovery for the future.
In 2020 world leaders through the G20 responded to the campaign by offering to suspend debt payments to governments for 73 of the poorest countries. This has saved $5.7 billion, but the debt will still come due to be paid in a few years’ time. And debt payments to private lenders and multilateral institutions, such as the World Bank, were excluded from the scheme. This has meant some of the money saved has been spent on paying high interest to private lenders, effectively bailing them out.
In Zambia, if the private creditors are paid the interest and debt in full, they could make between 75% and 250% profit from the debt. Many of these companies never lent Zambia money, but bought the debt cheaply on financial markets.
The UK has a key role to play in the call for debt cancellation. Many of the private creditors are based in the UK. And 90% of the private debts owed by countries covered by the debt suspension scheme are governed by UK law. This means that when in a case like Zambia a country stops paying, it can be sued at the High Court in London. But it also means the UK can legislate to prevent this from happening. For example, in 2010 the then Labour government passed legislation to prevent countries receiving debt relief through a past scheme from being sued by private creditors.
By being the world legal and financial centre for government debt, the UK has the key role to play in unlocking debt cancellation internationally. It could pass legislation to help make private lenders comply with debt relief. This could unblock negotiations for much more ambitious debt relief through the G20.
Debt cancellation is urgently needed in 2021 to help lower income countries recover from the pandemic, create more sustainable health systems for the future and to tackle the climate crisis.
The UK has a key role to play in making this happen.
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