UK MPs call for law to make private lenders deliver debt relief
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The UK Parliament’s International Development Select Committee has called for legislation to require private lenders to take part in debt relief. In a report into debt crises in lower income countries published today, the Committee said that: “legislation may be required to compel all creditors, including the private sector, to participate in debt relief” and has called on the UK government to “consult on the introduction of legislation to compel or incentivise participation of private creditors in the Common Framework”.[2]
Responding to the report, Heidi Chow, Executive Director of Debt Justice said:
“Instead of profiteering from countries in a debt crisis, banks and hedge should be made to take part in debt relief. The committee recognises that asking private lenders nicely simply doesn’t work. As most bond contracts eligible for the G20 debt relief scheme are governed by UK law, the government needs to introduce legislation that would compel private lenders to cancel debt for countries that need it.”
During the Covid pandemic the G20 created a scheme to suspend debt payments for up to 73 countries. While governments such as China did suspend debt payments, private lenders, including asset managers such as BlackRock, refused. This refusal led to less than a quarter of debt payments being suspended for the countries which applied.[2]
At the end of 2020 the G20 created a scheme to give debt relief, including debt cancellation, not just suspension. But none of the four countries which have so far applied for the scheme have had any debt cancelled, with private lenders holding up the process in Chad,[3] and refusing to cancel enough debt to make it sustainable in Zambia.[4]
The UK has a vital role to play, as 90% of bond contracts of countries eligible for the G20’s debt relief scheme are governed by English law.[5] The other key jurisdiction is New York. The New York State Assembly is considering options for legislation to put pressure on private creditors to take part in debt relief.[6] The IMF and World Bank have both called for the UK and New York to pass legislation to help enable private lender participation in debt relief.[7]
Of external debt payments by low and lower-middle income countries between 2023 and 2029:[8]
- 41% are to private lenders (non-Chinese)
- 33% are to multilateral institutions
- 14% are to other governments (excluding China)
- 12% are to Chinese public and private lenders
