Debt Trap: How Annual Meetings Perpetuate Inequality, Favoring the Elite at the Expense of the Vulnerable

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• “Governments face a dilemma – more precisely, a ‘trilemma’…”
• Multi-year budgetary plans must define consolidation trajectories adapted to the specific situations of each country…”
• More than half of African countries are in debt distress (23 out of 55 countries)
• A significant proportion of public revenue is allocated to debt repayment and servicing according to the economic outlook in Africa.

The 2024 Annual Meetings of the International Monetary Fund (IMF) and the World Bank (WB) will be held in Washington DC on October 25, 2024 in Washington DC. Against an uncertain background to the global economy, global political fragmentation and high costs borne by citizens in developing regions. According to AFrodAD’s press release, African governments find themselves in a debt spiral and face a “trilemma” of solutions.

“…families are suffering. And, looking ahead, the world is now facing a low growth – high debt trajectory…”a situation that is all too familiar in Africa where, at the beginning of the year, 4 countries (Chad, Ethiopia, Ghana and Zambia) defaulted on their debt and entered a restructuring program under the G20 Common Framework negotiated by the IMF said Managing Director of the IMF, Kristalina Georgieva.

Furthermore, according to the United Nations on Trade and Development (UNCTAD), more than half of African countries spend more money on debt service interest payments than on investments in education, health and public investments.

In countries like Kenya, it is estimated that almost 70% of its tax revenue for the coming financial year is diverted to debt servicing. This situation is not unique to Kenya alone; Other countries such as Zambia, Malawi, Ghana, among others, face similar policy challenges. “…It’s not easy. Governments face a dilemma – more precisely, a ‘trilemma’ – between high spending needs, political constraints on taxation and the need to rebuild reserves…” he said Kristalina Georgieva.

In this context, the atmosphere in Washington DC was largely tempered by the urgent need for finance ministers to ‘ensure’ the return to capitals at all costs, according to the press release. In doing so, African finance ministers are normalizing fiscal consolidation and austerity measures. This is in stark contrast to how citizens in developing regions have fared over the past six months in Argentina, Bangladesh, Kenya, Nigeria and Uganda. Despite the public protest caused by this orientation, the Managing Director of the IMF, Kristalina Georgieva emphasizes: “… Fiscal consolidation must begin now. Credibility requires persuasive communication to the public. Multi-year budgetary plans must define consolidation trajectories adapted to the specific situations of each country…”

With more than half of African countries in a situation of debt distress (23 out of 55 countries), the Africa Economic Outlook reveals that a significant proportion of public revenue in many African countries is allocated to debt repayment and servicing, leave little to finance. social sectors such as health and education, which goes against Africa’s Agenda 2063 and the Sustainable Development Goals (SDGs) of the United Nations.

Diana Mochoge, head of domestic resource mobilization at AFrodAD, responded to the IMF Managing Director’s comments by stating: “Many countries are in a situation where they are forced to pay their debt at the expense of people’s lives. The IMF’s fiscal consolidation policy imposes austerity measures that lead to cuts in key sectors such as health and education. High debt services attract investment in service delivery.”

Leading academics, development practitioners and high-ranking government officials also recognize that the global financial architecture is skewed in favor of rich countries rather than developing countries. The system is rigged against developing countries by design, not default. “It is extractive, neocolonial, unjust! It exacerbates poverty and keeps Africa in a cycle of vulnerability and dependency.”

Increasingly, Africa is facing climate shocks such as floods and droughts. While waiting for a UN tax convention adapted to its needs, the budgetary margin is shrinking, making it difficult for the continent to mobilize revenue. Northern credit rating agencies continue to ignore the “African premium” and how it leads to higher borrowing costs, as well as billions of dollars in lost capital.

“We cannot forget to mention the regressive fiscal policies, for example the austerity measures introduced by the IMF as conditionality, leading to cuts in the health, social protection and education budgets, which mainly affect women, girls and other vulnerable populations. Ironically, the World Bank and IMF emphasize growth, with little fiscal space and high debt levels. “The continent is suffocating and starving.”

The debt relief mechanisms proposed by the World Bank and the IMF are not suitable! The G20 Common Framework is an example where countries were slow to receive any kind of aid and to be punished. This is a system set up to favor the countries of the Paris Club, which consists mainly of rich countries, and is stacked against borrowers.

« The Common Framework is limited and not inclusive! This is not common except in the misery it brings! »

AFrodAD’s Tatenda Mzezewa highlighted Africa’s leadership in addressing the impasse on the G20 Common Framework and alternative venues to address the structural challenges of debt resolution. “South Africa’s presidency of the G20 and full membership of the same group provides an opportunity to promote sovereign debt solutions that go beyond the Common Framework and bring these important conversations to the fore. held in Spain in 2025. This is an important step towards Africa becoming a rule maker and not a rule taker.” she declared.

The system favors the interests of creditors rather than borrowers. The IMF’s quota system excludes most countries, leaving power to a privileged few. The World Bank is proud of the fact that it has replenished the IDA’s resources, but the facts show that very few countries have left the IDA, continuing the cycle of dependency.