African policy institutes gathered on 26 November, as part of the Amplifying Africa’s Voice (AAV) initiative for a knowledge-sharing session centered on "Borrower Coordination". Jointly organised by FDL and the African Centre for Economic Transformation (ACET), the session brought together representatives from various organisations involved in different aspects of borrower coordination, both regionally and globally. Participants shared their perspectives, objectives and synergies related to borrower coordination efforts.
Discussions were anchored in a recent analysis of the borrower landscape jointly led by ACET, AfriCatalyst and Development Reimagined following an in-person meeting during the World Bank/IMF Annual Meetings. It generated reactions from three organizations: the Bridgetown Initiative, the V20, and the Commonwealth Secretariat.
Assessing borrower coordination in Africa
The initial presentation of the joint research by ACET, Development Reimagined and Africatalyst outlined the need for better coordination among borrowing countries. The rationale is that while lenders have well-established coordination mechanisms through the Paris Club for sovereign lenders and the London Club for private lenders, borrowing countries tend to be fragmented, with less information sharing and less capacity for collective negotiation. There are over thirty initiatives and organizations that offer some aspect of borrower coordination. By pooling resources across these coalitions, countries could better address their needs both in terms of volumes and terms of new loans, and enhance collective bargaining for debt relief negotiations or access to fresh finance following restructuring. Such coalitions could offer a “safe space” for borrowing governments to voice concerns and navigate complex debt realities that go beyond conventional metrics of debt sustainability analyses.
There is a long history of borrower coordination, starting with the Cartagena Consensus in 1984, where, in response to a shared challenge of high debt service costs following interest rate hikes in the USA and Eurodollar markets, eleven Latin American countries created a forum for sovereign debt discussions. Today, the different coalitions tend to share similar objectives, for example a common goal of reforming the global financial architecture.
At the same time, they have different concerns based on varying levels of ambition, capacity, and regional representation. While the landscape skews more towards initiatives that aim for more advocacy and capacity building around specific issues related, for example, to developing sustainable debt frameworks, some seek to engage more holistically with borrowers through collective bargaining. The researchers have presented an impact-feasibility matrix as an organizing framework to assess initiatives based on regional representation, creditor engagement level, ambition, added value, and feasibility.
The presentation highlighted progress in borrower coordination initiatives as evidenced by the African Union’s inclusion in the G20. However, it concluded with a call to merge and pinpoint overlapping themes among various initiatives, despite the lack of widespread support for these actions. Nevertheless, such an approach could facilitate the allocation of limited resources to a smaller number of initiatives, ultimately strengthening bargaining power.
Perspectives from cross-regional initiatives
The dialogue focused on the necessity of working at various levels. First, it emphasized the importance of initiatives in pushing key decision-makers, such as the IMF, to be more proactive in debt negotiations. This can be achieved by having stronger parameters for debt restructuring – similar to the HIPC approach, which can only be done IMF-backing. Some participants believed that a debtor-involved platform might be able to promote such proposals to help define the “rules of the game” while avoiding negative consequences for a given country if it were to advocate on its own.
Overlapping themes and clustering are sometimes based on vulnerabilities tied to regional affiliations and unique development needs. It was noted that such frameworks can help address non-traditional creditors, explore innovative financing for countries, and draw lessons from developing countries’ past experiences (within and outside Africa). There were clear messages on the need for capital infusion, but also the need for bankable projects and coordination between lenders and creditors. As in other consultations, there was a strong call for capacity building and knowledge-sharing, particularly on debt negotiation.
Experts noted that developing initiatives that go beyond conventional rule-based solutions (often tied to economic yardsticks of GDP-based debt sustainability analyses) have implications for the business cycles and climate-related debt vulnerabilities that are particularly salient for the Small Island Developing States (SIDS).
Specifically, such initiatives can aim to set themselves apart by helping build capacity for time-bound solutions for countries that are exposed to debt vulnerabilities.
During the dialogue, some experts emphasized that coalescing diverse borrowers towards reforming the global financial architecture will take time but that the discussion allowed participants to identify specific areas of common advocacy for borrower groups across diverse regions and memberships. It was argued that a key priority would be to focus on the G20’s Common Framework, while at the same time, some participants noted that value recovery instruments and other state-contingent debt instruments have generally been defined at the initiative of creditors, with little input from debtors.
Finally, engagement with credit rating agencies was also mentioned in the discussion as a specific opportunity where there is a need to challenge methodologies and transparency.