Using loans – the right way

At the EU Africa Week in November 2017, European MP Charles Goerens proposed an initiative report to the Development Committee on the responsible handling of loans.

Loans for economic development and stimulating consumption are still important, according to Goerens. However, the report is to present a detailed overview of the indebtedness of developing countries. UNCTAD – the United Nations Conference on Trade and Development - currently estimates the total at USD 5.4 trillion, for which the South has to pay interest of USD 575 billion a year.

Cheap loans have further complicated the problem since the 2009 global financial crisis. For example, Zambia had debts totalling 18.4 billion Zambian Kwacha (ZMK) in 2010. They have since tripled, and are forecast to total ZMK 148.9 billion in 2020.

The debt crisis will endanger achievement of the Sustainable Development Goals – and not only in Zambia. Without neglecting the necessary positive effect of lending and to avoid scaring off investors, Goerens calls for loans to be assessed for their quality as a contribution to national economic development.

The EU should not only act as a donor, but should also commit lenders to make ‘responsible loans’. This means stepping up the fight against corruption locally, and strengthening parliaments to control budgets better.

Goerens wants the report to be a basis for an EU Directive or Order. This is a political response to a long-standing problem. Overindebtedness should not result in cutting off development aid, as this only hurts the population.

The report should include recommendations on the granting of credits, since this has changed. The local informal economy is getting more and more private loans, and ‘traditional’ donors from the North are being replaced by new development banks and lending by emerging nations.

The EU Commission is seeking a proactive approach to overindebtedness. The global community has been tackling the problem for over 15 years. In 2012 the G20 first tackled the issue in working papers at the 2012 summit in Mexico, the International Monetary Fund has drawn up guidelines, and the Club of Paris – the informal forum for the main lenders for 60 years (although without China) - has been addressing the restructuring of bilateral loans.

Although the G20 declaration in China in 2016 again warned of the importance of the issue, the debt clock is inexorably ticking away. A new approach by the EU can’t hurt.

Roland Krieg, journalist, Berlin/Germany