The UK Treasury ministry has consistently been a key obstacle to UK-led efforts to make debt systems fairer for developing countries, advocacy groups and MPs have told The Independent, limiting progress on an issue many believe will be crucial to meeting global development goals in the wake of foreign aid cuts.
Following global shocks such as the Covid-19 pandemic, low-income countries now spend an average of 18 per cent of government revenue servicing external debt, while 3.3 billion people live in countries that spend more on debt repayments than on health or education. Countries are also paying billions more to cover debts than they are receiving as aid to fight climate crisis
Momentum has, however, been building behind efforts to push the government to do more to help developing countries facing debt crises. NGOs including Christian Aid, the Catholic International Development Charity (CAFOD), and Save the Children have made debt relief an advocacy priority in the UK, while civil society groups report that at least 30 MPs are now pushing the issue, particularly after the economic hit that many countries have taken from aid cuts. Development Minister Baroness Jenny Chapman has also described debt relief as a “key international priority”.
Last month, Labour MP Bambos Charalambous presented a private member’s bill on debt relief for the second time, which seeks to capitalise on the fact that some 90 per cent of developing country debt eligible for G20 debt relief is legally domiciled in the UK, as a result of the strength of the City of London.
The bill would require private lenders – who hold an increasingly large share of developing countries’ debt – to negotiate in good faith when a country seeks to restructure its debts. It would also allow countries to suspend debt repayments and also halt creditor lawsuits while negotiations are under way.
Existing debt relief processes are largely voluntary, and widely criticised for being too slow. Last year, South Sudan – one of the poorest countries in the world, where many people are living on the brink of famine – was also sued in the UK High Court by a for-profit private lender after the country fell behind on its payments.
However, while momentum has been building behind calls for debt relief legislation – with many looking to the UK’s G20 presidency next year as a key opportunity to turn discussion into action – aid groups have told The Independent that the Treasury has emerged as a key obstacle to progress.
“We are constantly engaging with around 30 backbench MPs as well as key ministers who are keen to push this agenda, and they tell us that the Treasury is the key blocker on debt relief legislation,” says Jennifer Larbie, head of UK advocacy at Christian Aid.
“The UK government has committed to doing something on this in its manifesto, which is what we are continually reminding government ministers,” she adds. “But the fact of the matter is, things are not moving fast enough for the countries facing this crisis.”
The Labour MP Mr Charalambous adds: “Against the backdrop of aid cuts and multiple crises, the UK has the opportunity to support communities around the world, without costing the UK Taxpayer a penny. The Treasury need to get behind my bill, and not get in the way, for a better, fairer debt system.”
Ms Larbie says that private lenders have been lobbying the Treasury to not introduce legislation on debt reform, and as things stand there is a reluctance to oppose what these financial institutions in the City of London – who are major players in the UK economy – are asking for. “But who is the Treasury really working for: countries in crisis, or private creditors who make millions from their misery?” Ms Larbie adds.
Maria Finnerty, chief economist at CAFOD, adds that MPs have described the Treasury under Rachel Reeves as being “driven by the will of the City,” and says that there has been little willingness from senior Treasury ministers to engage seriously on the issue of introducing debt legislation.
A common retort to calls for debt relief legislation is that it will undermine creditors’ willingness to lend in the future. But Ms Larbie rejects that argument, saying the evidence instead suggests debt restructuring can help restore countries’ access to capital markets in a more sustainable way. The IMF has also argued that debt restructurings can “re-establish… market access in a durable way”.
Another common argument is that losses imposed on private creditors could ultimately affect pension funds and other savers whose money is invested in developing country bonds. But Ms Larbie says Christian Aid has had private conversations with investors who believe it is possible to restructure debts in a way that protects pensioners while still delivering meaningful debt relief.
“There is simply no evidence to support the government’s needlessly cautious approach. Fear-mongering by City of London financial firms who claim that legal action would reduce lending to low-income countries is not new,” Maria Finnerty at CAFOD tells The Independent.
“It is therefore extremely disappointing that this Labour government has so far refused to pass a new Debt Justice Law, which could address the debt crisis that is affecting hundreds of millions of lives and livelihoods at zero cost to UK taxpayers,” she says.
In response, a Treasury spokesperson said: “Tackling unsustainable sovereign debt is an important international priority. We are working with our international partners through the G20 and beyond to help tackle debt vulnerabilities and deliver debt relief for countries that need it.
“We are committed to an international financial system that supports development outcomes and helps low-income countries address their debt challenges.”
This article has been produced as part of The Independent’s Rethinking Global Aid project
