Karim Karaki looks at Chinese engagement in sovereign debt relief and restructuring in Africa, and provides a better understanding of Chinese practices and positions. He also highlights options for the EU to move this agenda forward.
Summary
This brief looks at Chinese engagement in sovereign debt relief and restructuring in Africa and provides a better understanding of Chinese practices and positions. It highlights options for the EU to move this agenda forward.
After Chad, Zambia is the second country in Africa which recently restructured its sovereign debt. Despite the optimism from this news, international action on the sovereign debt agenda has been too slow and limited. The 2023 Africa Climate Summit made it crystal clear: a more climate-positive African position is contingent on a decisive answer to the sovereign debt crisis faced by many African economies. If not addressed properly, several African countries are looking at a potential default in the short term, while others – due to their debt vulnerability – may not have the required fiscal space to make critical investments, which would have a severe impact on human development and effective climate action. In this context, the limited cooperation between the West, China and the absence of private creditors from debt restructuring are key barriers to progress on sovereign debt reform.
A better understanding of China’s engagement in debt will help European creditors and policymakers identify and create new incentives which can influence a structural and systemic engagement of China in debt relief and restructuring. Furthermore, approaches from both the West and China should be more compatible with a focus on investments in sustainable development where even more avenues for collaboration could be explored.