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Reform Priorities for Tackling Debt

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Many low-income and emerging economies are facing heavy debt burdens, limiting their ability to invest in education, healthcare, social protection, and infrastructure. For some, debt is already unsustainable. How can countries and their development partners chart a course for resilient economies and a brighter future for all?

This seminar explored options to boost resilience to debt risks, including through domestic reforms to enhance growth, improve expenditure policies, boost domestic revenue mobilization, and strengthen debt management. It also discussed the need for scaled-up support from the global community through the provision of concessional financing and technical assistance, as well as improvements in sovereign debt restructuring processes for timely and predictable debt relief when needed.

This IMF-World Bank Group joint event is available with simultaneous interpretation in Arabic, French and Spanish.

[Joumanna Bercetche] Hello, everyone. Apologies for the short delay. The Managing Director is just on her way, she'll be here in just a few moments. But thank you so much. I'm really excited to be moderating this panel. Of course, the title is right in front of you, “Reform Priorities for Tackling Debt.” I have spoken to a lot of policymakers in the last week, including the Managing Director, the Deputy Managing Director, various department heads from the IMF, and I've got to say, debt came up in every single one of our conversations. One of the statistics that stood out to me from the Fiscal Monitor is this one. 19% of countries are already in debt distress, another 30% are at high risk of debt distress. That is half of the world's countries in debt distress or getting close to it. But it's not only debt. We know that interest rates have been rising as well. Obviously, that has implications on debt servicing. The more that countries are spending on debt servicing, the less they have in terms of fiscal firepower to spend on productive investment, things like education, health care, social protection, which in itself, as we know, is detrimental for productivity and for growth. We're here today to talk about the reform priorities for tackling debt, why rising debt matters, why we should be concerned, what vulnerable countries can do to become more resilient. Then we're going to talk a little bit more about the role of the international community in aiding with these debt reforms. I'm going to go through our panelists very quickly. Not here, but here to me, in a very short while is the Managing Director of the IMF, Kristalina Georgieva. She will be joining us. To her left, the World Bank President, Ajay Banga. To his left, your Excellency, Mohammed Al-Jadaan, the Saudi Finance Minister. Then we have Professor Anna Gelpern from Georgetown Law. Obviously, [unintelligible] there she is. [Audience applauds] The lady of the hour, there you are, Managing Director Kristalina Georgieva. You got a round of applause. Then we have Situmbeko Musokotwane, the Zambian Finance Minister. Of course, we are very privileged to have you on our debt panel today, Finance Minister, because you can give us a good perspective of what debt reform process actually means in practice, given the restructuring process that Zambia has gone through the last couple of years. Managing Director, I don't mean to put you on the spot, but I am going to start with you.

[Ajay Banga] She's just arrived.

[Joumanna Bercetche] She's just arrived. I gave it a little prelude talking about one of the statistics that stood out to me from the Fiscal Monitor and the fact that almost half of the countries global in the world are either in debt distress or very close to being in debt distress. How worried should we be about debt vulnerabilities right now?

[Kristalina Georgieva] We should be concerned, but recognize that we are not at the footsteps of a debt crisis. Why we should be concerned? Because over the last years, governments, households, businesses had to borrow to sustain their function and debt everywhere has piled up higher than it is good for those who take on that debt. Where is the problem most severe? It is in low-income countries. It is actually there where half are either at debt distress or near debt distress. That doesn't apply for the rest of the world. For emerging market economies, in other words, middle-income countries, about 20% are now in distressed territory. When we look at low-income countries, they're being hit three times. First, because they stepped into these shocks with very little to protect themselves, almost no buffers and whatever they had has disappeared. Second, because interest rates are high, they borrowed to sustain their people and now interest rates are eating into their revenue. We actually saw in the data that servicing debt, the cost of servicing debt has doubled. Three, they're being hit because international support has stagnated. This is why Ajay is calling for IDA resources. This is why I'm here calling for resources for our zero-interest rate facility. It is called Poverty Reduction and Growth Trust so we can step up to help countries. But of course, the most important thing we need to do is for countries where this burden is already unbearable, to help them with that restructuring. Zambia is one of these countries. Great government in Zambia, very committed to reforms, but held back by a mountain of debt from the past. We have seen Zambia proving that debt should be restructured, and ladies and gentlemen, an MOU, Memorandum of Understanding of Zambia creditors has been finally signed. A round of applause for Zambia. [Audience applauds]

[Joumanna Bercetche] Well, thank you for the breaking news. Wearing my CNBC hat. Ajay, I'd like to turn to you as the head of an institution that is primarily concerned with eradicating poverty and promoting sustainable development, how worried are you about the debt challenges? Can you tell us a bit more about what these debt challenges mean for lower-income and emerging market economies?

[Ajay Banga] Thank you. First of all, let me also add my congratulations to Zambia. They've been working really hard at this. Back in Paris in July, when Kristalina and I were there together, we made the first announcement of progress. But I think real progress has finally happened. Both the Finance Minister and his President are actually very forward-thinking people, and I think this will enable them to take Zambia on the right pathway. Back to your question, if you took sub-Saharan Africa, sub-Saharan Africa these days is paying for all the reasons Kristalina pointed out, interest rates have doubled and so on. They're paying 7.6% of their GDP to pay down debt, to pay back the interest cost on debt. You could say is 7.6% good or bad? For comparison, what they spend on education and health care together is 5.6%. 7.6% is a lot, therefore. That's the first issue. The second issue is what that does effectively is it crowds out the ability of those governments to be able to put money to work for human capital, for climate, for infrastructure, for the things they need to put their country onto the right pathway for the coming years. They're paying a lot for it, they're paying more for it than they're putting into things you would expect them to put into, and what they are being able to do then is crowd out what they should be spending on even other items. The third impact of this thing is that even the private sector gets crowded out because banks locally effectively end up backstopping that debt issue of the government. Now even that bank doesn't have headroom to be able to facilitate private sector investing locally. Now, if you're an overseas investor and you take a look at this picture and you see 7.6%, 5.6%, not enough spending on the other things, crowding out of the private sector domestically, you don't tend to feel comfortable putting money into that country. Basically, it's a cascading issue of bad news. It starts from paying too much for your debt. That crowds out what you can spend on other things. The private sector gets crowded out, and overseas people don't come in. All four things add up. What I do want you all to think about, however, and we hope we can talk about that a little bit, is it's not that debt is bad. Debt is bad when it's out of proportion to what you think you can manage. If you've got a lot of lessons from there, we can talk about it. But I don't want you to leave walk away with the impression that debt is bad. It is when it's handled in a form that is not quite holistic, that it gets you into real trouble. Then successor governments like his have to come and clean up what was left behind. That's the challenge.

[Joumanna Bercetche] Very clear. Your Excellency, actually, I just want to give a little reminder to our audience that as Saudi Arabia were presidents of the G20 when the Debt Service Suspension Initiative, that's called the DSSI, was introduced. Of course, that was an initiative which allowed countries to suspend payments on debt throughout the COVID-19 crisis. That was also the precursor to what is known as the Common Framework for Debt, which is a multilateral mechanism for forgiving and restructuring sovereign debt. These were huge steps. When you look back at how far we've come since then, do you feel the need now for more initiatives? Do you think now is the time to be bold once again?

[Mohammed Al-Jadaan] Thank you very much, Joumanna. I think you are going back to a challenging period in 2020 and Kristalina was instrumental in reaching the DSSI. It was a very difficult period. Funds were actually even very thinly available. Countries were scrambling for their own lives and on their own people. But still, there was hope that creditors, even with the shock that they were facing in their own countries, actually cared about debtors countries. They came together through IMF, World Bank and the G20 and decided to do the Debt Service Suspension Initiative, which gave actually about 13 billion dollars of freezing space to 48 nations. That's not small, but then it is actually not possible just to suspend debt service indefinitely. We needed to make sure it was extended for another period, but then we needed something to make sure that there is actually another way to deal with this debt, which then through negotiation came the Common Framework. The idea behind Common Framework is you are actually fixing the engine of the plane when it is on air with full passengers on board. You really needed to think very quickly, find a way to deal with it. It's not something that you can actually design that fits every country and every group of creditors. It needed to be really custom made depending on circumstances of the individual country itself, but also, the group, the nature of group of creditors. I think it is working. It is frustrating that it is not working better, obviously, and I would like to see it being implemented in three months and we sign an MOU, but the trend, and I had a discussion with Kristalina a couple of weeks back, and the trend actually is going down. The first country took about two years, 18 months, nine months, and now it's actually getting a lot better. I would like to see it actually improved and I would like to see more creative products that will deal with it. If it was for me, I would like actually to see an agreement today that we sign every creditor sign up and then we will waive all debt and relieve countries. But that's idealistic. Short of that, I think we should be creative in finding solutions that will help these nations. By the way, I am not a political appointee, I'm a technical appointee. I could say that politicians will also need to educate their people. As a creditor nation, when you actually give a relief to a poor country, low income-country, or even medium country that is in distress, you are doing it not only actually out of charity, you are doing it for your own interest. It is in your interest that the world economy is healthy. It's in your interest that we don't leave behind desperate nations that can actually cause more trouble to the world. Thank you.

[Joumanna Bercetche] Finance Minister, I would like to turn to you. First of all, congratulations on the MOU, on the step. Zambia agreed to a debt restructuring program in June this year with IMF and other creditors, and as part of the restructuring program, agreed to a series of policy reforms. Can you talk us through your perspective on what you're doing on that front and also, how ultimately it will lead you to a path towards growth and less debt vulnerabilities?

[Situmbeko Musokotwane] I'm sorry, there's an echo in the room, so I didn't get you properly. Could you repeat?

[Joumanna Bercetche] First of all, I just wanted to say congratulations on the MOU to you personally.

[Situmbeko Musokotwane] Thank you.

[Joumanna Bercetche] As part of the restructuring program that you agreed with the IMF earlier this year, you agreed to a set of policy reforms. Could you talk us through the impact that those policy reforms are having, how you see them playing out, and also ultimately what it will do, what those reforms will do to reduce your debt vulnerabilities?

[Situmbeko Musokotwane] Thank you very much. That's much clearer now. I want to start off by thanking the friendly institutions that are here. The IMF has been wonderful, the World Bank has been wonderful. The Paris Club, the Official Creditors Committee led by France, China and South Africa. They've been wonderful. The creditors have been wonderful. Thank you everybody for delivering this to us. Thank you so much indeed. You talked about the reforms that we have had to implement. Obviously, the first thing on the reform agenda, and perhaps we have never said this to you, let me tell you that it's embarrassing to find yourself in debt distress. It is embarrassing because it is not long ago when we had HIPC and other debt restructuring mechanisms. One of the first things that we did was to say never again should we allow this to happen in our country, at least not in this administration. Therefore, the first reform was to put legislation that makes it harder for any government to go on uncontrolled borrowing. The element of that legislation included stronger power for parliament to say yes or no to proposed borrowing. Another element was putting binding constraints in the legislation. The debt at any given time shall not be X percent above as a proportion of GDP. That is in the law as part of the reform. The other element was to open up transparency for our government to be reporting regularly to say this is where we are with debt. Therefore, this first element of reform was to limit the ability of any administration to go reckless on borrowing because it is an embarrassment for us. First set. Second set of reforms. Now, with this debt, we have got less money. At some point, if you combined what we spent on paying public salaries and servicing the debt, 90% of… or rather 90 cents of every dollar collected in taxes just went to these two items. The brunt of this was obviously on the weakest in society. Now we are to say we are gaining assistance and we need to do something to focus our money on the most vulnerable in our society. Therefore, we had to do away with the painful issue of subsidizing fuel and diverted that money to make sure that every child can go to school, can go to school all the way up to high school, whether the parents can pay or not. Because we all know the value of human capital investment. Money was shifted from subsidies for the relatively well off to the most vulnerable. Second thing, in terms of this realization that our money is short, we had to admit that some of the infrastructure that we need to do, we don't have money for it, we cannot borrow. What do we do? Open up the windows to the private sector. As you speak right now, we have signed up to about six PPPs on roads reaching something like 800 km. Some of those, in fact, two of these, work has already started because we don't have the money. But the private sector is there, they can provide the money, so we do it. Another element that I wanted to talk about, decentralization of money, government money. Previously, if a primary school had to be built, somebody in Lusaka must decide it must be there. [Unintelligible] for those few who managed to get them, somebody in the headquarters in the capital city had to decide. We said this is not working. From now onwards, money will go directly to each constituency. Not even a district, but to each constituency. Here's the money. Choose which one amongst you is most vulnerable. That requires a government scholarship. Choose amongst you where you are going to build a clinic, where you're going to build a school, that was focusing money on the most vulnerable in society. That is reform number two. Number three, reform number three. Colleagues, thank you so much for providing debt relief. But that by itself is not enough to provide the kind of life that these young people in Africa want to live. They can see it on television in Europe, in Asia and so forth. They want to live better lives. Major debt restructuring would not be enough to deliver that. What will deliver that? Higher economic growth to create jobs so that we no longer have youth crossing the Sahara over the Mediterranean to go to Italy, Greece, whatever. Opportunities must be made in Africa. How is that to be made? To create conditions, and this is what we are doing in Zambia, create conditions that attract private sector investment to come in to create those jobs, increase tax revenues and so forth. And I'm happy that a lot is happening in mining. This year alone, 3.7 billion in new investments compared to 1.7 billion last year. A lot of companies are coming in to take advantage of the green push because of nickel. We've got copper, we've got manganese, we've got lithium. They are coming in like drops to come and mine, but also to add value to these minerals. In short, these are the reforms that we are doing. Prevent reckless borrowing, support the poor and do something to uplift the economy of Zambia so that we live like the Moroccans, like the Italians, like the Greeks. [Audience applauds]

[Joumanna Bercetche] Thank you. Thank you for that. Professor Anna, the title of this panel is obviously “Reform Priorities for Tackling Debt.” We spoke about some of the policy reforms. I want to ask you whether you think there is a need for perhaps reforming some of the legal framework. You're a lawyer, so how do you think about how the process can be made more streamlined? What can be done from a legal perspective to facilitate these debt restructuring processes?

[Anna Gelpern] First of all, I'm grateful and humbled to be on this panel. I'm sort of the one free agent and I hope not to disappoint in that regard. But I'm glad you framed the question this way, particularly after the Minister spoke, because I think it's worth thinking about how some of these mechanisms and some of these concepts are not like the others. Building a school for children, feeding children, that's an end. Getting resources for that, and particularly in the form of debt, that's a means to an end. A contract is a means to a means to an end, and a contract clause is a means to a means to a means to an end.

[Joumanna Bercetche] You can tell she's a lawyer.

[Anna Gelpern] Well, I'm not an economist. What can I do? All I have is words. But I think it's very important to think about this in the context at a moment like this, when we're trying to figure out what are the priorities for people who are starving, for people who are drowning, for people who are burning up. I think, number one, it's resources. And I think the minister said this, right? In many, many cases, debt relief, debt service relief will deliver the resources. But I think if we're talking about the legal framework, the institutional framework, the priority is resources, and then some of it to figure out which of this would be debt. I think, really, the Common Framework and before this, the DSSI were really important lessons in this regard. Because some countries had lots of debt service and others didn't, and that didn't mean they weren't starving. That's sort of point number one. I think getting to the means-to-means kind of the next level, I think that we live in a really interesting moment where there is a huge diversity of creditors and a huge diversity of debtors. It is not entirely new, but it's something with which the system is struggling still. It's not about bad faith. It is entirely to be expected in a world dominated by five creditors who met every day of the week wearing different hats, one day about strategic cooperation, next day about trade, then about debt. The coordination challenge is very different from the one where you have this diversity, but diversity is good, debtors have more options. Again, you heard from both ministers in that regard, but that means we need to think about how to build trust. Trust is a very big and vague word, but it has very concrete implications. When we talk about transparency, it's a means to the end, trust. Therefore, you have to ask, well, who has to disclose what to whom? What is the purpose of disclosure, for example? I'm going to stop, but not before I say public debt must be public. Public debt is public. And the presumption, this is a very lawyery thing, it's a device, the presumption has to be that debt terms, debt restructuring terms, underlying contracts, as well as financial terms, are disclosed not just among creditors, not just behind closed doors to people we already trust, but ultimately the goal has to be public disclosure, and that means accountability and that means pressure to speed up, that means pressure to formalize. To me, those are really the priorities.

[Joumanna Bercetche] For all stakeholders. Managing Director, I want to come back to you, actually, to pick up on something that Ajay said about that not necessarily being bad. It's not about borrowing, but it's about what you do with that borrowing. I think what we want to avoid here is this trap of evergreening so that you get in this endless cycle of borrowing to fund more borrowing, et cetera. How do we get out of that cycle? Let me just ask you that.

[Kristalina Georgieva] I wholeheartedly agree. Debt invested in income generation activities, in profit generation if you are in the private sector, that provides the means to pay back. The problem is when that is for white elephants, you throw good money into a big black hole or, and this also happens, when you borrow with the assumption of a particular growth path and it doesn't happen. What do we do? I was so thrilled to be speaking after you, Anna. You did a great job to bring front and center the creditor landscape and also the landscape of debtors. We today have private sector in all kinds of variations, private, that is really private state-owned enterprises. Then we have banks, non-banking institutions, governments, within the government's, different agencies offering loans. Then when the time comes to deal with unbearable debts, we have to figure out how to compose the right set of people because they would be different in different countries. What do we do about this? We started, and it was the leadership of Minister Al-Jadaan, with the Common Framework. What the Common Framework did was to bring traditional lenders, traditional creditors, new creditors, and also associate private sector on a case-by-case basis. Indeed, every case seems to be moving faster because something that was brand new when you called for it and we worked together on it is now available and it is working. There are lessons that are drawn and we are integrating these lessons. But we took one step further and it is a very, very important step. Together with the World Bank and the Indian G20 presidency, we created the Global Sovereign Debt Roundtable. What is this? Finally, we bring in one room representatives of these different groups. We have four places for Paris Club. We have four places for the new creditors, Saudi Arabia, China, Brazil, India. We have four places for private sector, for institutions and organizations representing private sector, and we have four seats for countries that are borrowers. What we do is to go systematically through the thorniest issues that are on the way of debt resolution and do what Anna was talking about, build trust. It is amazing what one can achieve when you are genuine, when you are frank and you treat everybody with respect, allow every point of view to be heard. Am I optimistic about the future of debt resolution? I'm more optimistic today than I was before the Common Framework, before the Sovereign Debt Roundtable, but also before there were clauses introduced in debt instruments, in bonds and now in loans that are basically debt suspension clauses. I want to cheer the World Bank that introduced debt suspension clauses related to climate shocks in bank lending. At the IMF, we also do something very interesting. Before COVID-19, we had an instrument called Catastrophic Containment and Relief Trust. Once COVID-19 hit, all of a sudden, we realized, like in the first days, that we have these very poor countries, their economy stopped, but they have payments to make to the Fund and it would have broken our hearts to have people to choose between serving their debt to the Fund or feeding their people. We used this instrument, we provided about a billion dollars in debt relief. For two years, countries didn't have to pay us. I think we have to bring all these experiences and then construct that more systematic approach to the problem of that resolution and be not ashamed to say, look, we are learning. That was one thing we didn't do before, but now we are doing it because we see it works.

[Joumanna Bercetche] Well, Ajay, just to build on what Kristalina was saying, and I think she may have answered a bit of the question, but what would you say are the right tools and policies needed both at international and domestic level to help countries improve their resilience to these types of shocks?

[Ajay Banga] Kristalina is an ex-World Banker. She knows everything about the Bank. You got to remember that. That's why she's such a good partner for me. I've been learning from her from the day I got nominated. Just to be clear, by the way, you have two lawyers on this panel. This guy is a closet lawyer, and he's a very good lawyer, so be careful.

[Joumanna Bercetche] I'll be careful what I say.

[Ajay Banga] I've known him a long time, so he's a very good lawyer. I'm not a lawyer, so let me step back a little bit. Debt. When you take debt in an environment of very low interest rates that the world has had for a very long time, and I believe low interest rates for a very long time have created many imbalances in our financial system, asset bubbles in certain places. But I actually believe the much bigger issue has been the debt circumstance, because a lot of people did calculations of what debt they could afford based on what they thought their repayments would be. Because interest rates stayed low for so long, it lulled people into a sense of complacency about what interest rates would do in the future. All you have to do is go back in time a year or two and you will find everybody thought the era of interest rates being low or near zero was going to stay forever. Now, of course, everyone's view has changed, and the era of higher interest rates will stay forever. They will also be wrong, because anybody who knows how to predict interest rates should be in a different business. Normally it's called soothsaying or future telling. Nobody knows how to predict this. The problem is you have to learn how to manage what you think you can pick and choose to invest in the way the Minister was explaining. You cannot do all the things, no matter how important they might be, because you will not be able to afford the downside if the interest rates begin to go up. That's the first problem. The second problem is you have to think about your expenses as a government when these problems happen. Can you be better at procurement? Can you be better at expenditures that today you take for granted? But if you took a sharp pencil to them, would you be able to find savings there? The same thing is true of revenues. Can you find revenues that poor people would not be paying, but property tax, for example, or tax implementation that you had wanted to do but hasn't been put through properly? You've got to go through all those steps. But even if you go through all those steps, you still need a couple of things to happen from institutions like ours. And Kristalina referred to a couple of them, the climate resistant debt clauses which have been announced for the Caribbean nations and others, smaller nations, if they get hit by a hurricane, we suspend debt prepayments. We've got category insurance for climate. We've got stuff of that type. What we really have is the four countries that went into the Common Framework Zambia, Ghana, Ethiopia and Chad. In the last three years, the World Bank has given them 12 billion, of which 6 billion was grant money and the other six was concessional. Six and a half billion was net positive flows. And by the way, since the date Zambia signed the original agreement in July when we were in Paris, all they're getting is grant money. The World Bank has to therefore be there at the right time for that kind of lending. Now we're back to what I'd like to conclude this thinking with, which is that when I said not all debt is bad, I would also say the idea is that debt should not be used for… debt should not squeeze out development. Debt should be there for development. An institution like ours, can we do more in terms of longer-term lending for a Zambia, even longer than we do today? Because what looks like expensive debt to him today with a 20-year debt would be very different on a 30-year debt or a 40-year debt. I just think that conversation needs to be… we do a lot of that today with IDA. We do a little bit of the IBRD, we do some 20, some 30. We should we be doing more, 30, more 40 in certain cases, it's just worth thinking our way through this. I don't know if I can get this done, I’m just telling you when I'm thinking about debt squeezing out development, we have to find creative ways for countries to get access to money they can afford at prices and tenors that make sense for their stage of development.

[Joumanna Bercetche] Your Excellency, we've spoken about the Common Framework a few times. Let me just ask you how you think we can build on some of the successes that various panelists have talked about to improve the framework. Also, given Saudi Arabia is emerging as an increasingly more proactive donor and creditor, what more do you think the donor community can do?

[Mohammed Al-Jadaan] Very important, actually. First of all, actually it's very important to recognize that donor nations and creditors at large are doing a great service to countries who are in need. We should recognize that and we should appreciate it. But then it is a teamwork. I think we should basically recognize that the Common Framework alone is not going to help, and the official development assistance alone is not going to help, and IMF programs alone is not going to help and World Bank programs are not going to help. Academia is not going to help alone and NGOs are not going to help alone. But I think if we come together, we could actually do wonders. You could see that coming actually across in the Common Framework and people actually getting excited about it, getting, actually, to appreciate the value of it. What would also help is actually better institutionalization, so that it is clearer for people, for creditors, what the process is, how long is it going to take, what are the basic parameters. These clarities are actually very important. I think His Excellency, the Minister, have said there is actually also a very negative stigma that is amplified also by the rating agencies that we need to engage and make sure that we keep them very close to us, educate them, because it is not in the interest of countries to actually delay the process. Delaying the process of going through the restructuring will actually just cause more damage. You are digging more into the hole rather than actually seeking help. Finally, I would just note that it would actually take the Debt Roundtable type of initiative that is happening for the last now 18 months or so for some more creative ideas to be coming forward. We have seen some of this from the World Bank, the IMF. But I would just close with one thing. We should not underestimate the importance of technical assistance. In a discussion with Ajay, and he will be better to speak about it, him and Kristalina, actually possibly moving the Bank to be a Knowledge Bank and IMF leaping very quickly into a serious technical, custom-designed technical assistance to countries will actually go a long way in helping how they deal with the debt and how they deal with the new funding.

[Joumanna Bercetche] Finance Minister, I would like to turn to you again. From your perspective, what would you say have been the biggest obstacles that you faced in terms of getting the financing you need for the challenges that you face? And these are the long-term challenges that other countries around the world are facing as well, but the difference is obtaining the financing that's required.

[Situmbeko Musokotwane] There are several sources of financing for countries such as mine. We have had the traditional sources like from the IMF and the World Bank. They've done lots of work in Zambia, and I must thank them for that. But as everyone recognizes, the resources of these institutions need to be enhanced. It was very interesting to hear the President talking about a possibility of lending for 40 years. That's why I think we are all pushing very hard for these institutions to be assisted, to have more capital, to have more resources. Let's continue to do that. It's very, very important, especially for a time like this, when we are hit by the war in Ukraine and all these things, it's very important that we support these institutions. I also want to say that I agree again with the colleagues. There's absolutely nothing wrong about borrowing. There are countries in this world that have borrowed, and they didn't get themselves in problems. They've actually made progress. For us in Zambia, we have borrowed before, but you have to borrow carefully. You have to borrow carefully. But what I want to say now is that no matter what we do, at least for the foreseeable future, the resources of these institutions can never substitute what I believe is the role for the private sector. Because with the private sector money, provided you create conditions that make it attractive for the money to come, it will come. Here we are. I spoke about, I think, almost 800 million dollars that is coming to do the road, we need to do more, we need to do more. When I reflect back in history, starting from the many years to what we've observed in Asia in the last 30, 40 years, countries that were poorer than African countries, South Korea, for example, used to be poorer than Zambia in the 1970s. But you see what has happened with the private sector opening up, creating conditions that are right for investment. They are there. I would say that we shall definitely continue to borrow for the time being. Obviously, under concessional terms, this is a restriction that we will put on ourselves. But for now, what we are pushing very hard for is private sector money. Mr. Minister, speak to your corporates in Saudi Arabia, opportunities for tourism. Come and invest. I know you like hunting in Saudi Arabia and safari lodges. Please, call those rich people to come and invest. [Audience applauds] Those of you, we say there's crisis of food security. And we all know that the only space that is too available in the world to substitute, for example, Ukraine and all these places, and also to minimize the risk of depending on one sector, the only space that is available is in Africa. We have opened up space, farm blocks, 100,000 hectares, 200,000 hectares, so that those who have the capacity to come and invest, please, do come. We'll facilitate for you very quickly. As we speak right now, no Visa requirement for Americans, no Visa requirements for Chinese, no Visa requirements for so many, Germans, Europeans, and so forth. All these are reforms that are undertaking so that those of you with the financial capital, you can come and work with us. This is true money. Money is money. It doesn't matter whether it come from debt, whether it came from donor money, whether it comes from what, that is irrelevant. The most important thing is that it can create jobs, create wealth. That's what we are looking for.

[Joumanna Bercetche] Absolutely. [Audience applauds] Professor Anna, earlier on you were talking about the importance of trust in this whole system. Let me just ask you, what do you think the immediate priority is when you think of the global financial architecture? What should be the immediate priorities to help increase the trust in the system?

[Anna Gelpern] I have a very easy answer and then lots of complicated answers. The easy answer is the Common Framework should have a website. When it has a website, it'll be a real thing. It'll anchor expectations.

[Joumanna Bercetche] Sounds like an easy fix.

[Anna Gelpern] But seriously, I was around when the Paris Club got a website. I was in the government, and that was some decades after the Paris Club started being a club. I take very seriously this idea that learning is important, institutions are diverse, and this is very real. The trouble is that there is no time. If we take as long to learn now as the Paris Club took to learn in the 20th century, a lot of the countries that we really need to help will be underwater. This is the simple thing. But now I'm going to get very slightly complicated and weedy and go back to the President's point about the debt suspension clauses. I actually think that one clause is not like the others, because it immediately delivers something. If you think about collective action clauses or all kinds of other wonderful things that I spend my entire life on, you don't know what the substantive outcome is going to be. These are process devices. Today, we have a system where the burden is on the debtor to take the initiative to coordinate among creditors that are getting increasingly hard to coordinate, just when the debtor is most strapped for resources, has the least bandwidth. Some automaticity that delivers relief right away I think is actually incredibly valuable and perhaps something worth building on and exploring. Thank you.

[Joumanna Bercetche] Managing Director, I just want to bring it back to global financial architecture. The challenge with these debt restructurings is getting all creditors to agree. I know there have been talks within the IMF of maybe readjusting quotas to reflect and be more representative of countries' respective weights in the global economy. China, of course, is what I'm referring to, but China has also been criticized at hampering debt restructuring efforts. How do you reconcile China's increasing clout in the global economy with your desire to streamline and reform the debt restructuring process?

[Kristalina Georgieva] It is very important to recognize that over a period of time, China has dramatically increased its presence in many countries, especially here in Africa, as a source of financing. Some of this financing was good, and some of this financing perhaps was overextended. What we are seeing today is China is actually withdrawing from being a source of finance, and that, to a certain degree, creates more pressure on countries like Saudi Arabia and others to step forward. What this expansion meant that China stepped up with multiple sources of financing, state-owned enterprises, EXIM Bank, China Development Bank, and many others. We are talking about coordination internationally. But there was and there is still, to a certain degree, a problem of coordination internally in China. Only recently, China determined the institutions that are responsible to figure out who lent to whom, how much. I don't think that even today, the whole number, the whole picture is in one place. But I want to step beyond one particular country and say two things. The first one is prevention is better than cure. The Minister Al-Jadaan talked about capacity development. We have to recognize that in a highly complicated world of debt, we have an obligation to support countries, to build skills, put in place good debt management, be transparent, have websites that you can see what they borrowed from whom. Secondly, we have to recognize the very simple fact of life, that if countries grow, they can bear the debt. If I were to have a magic wand today, what would I do? Wave it? Not so much. If I'm told you have only one, wave it only once, I would wave it to build the bridge between the money in aging societies to the countries with youthful growing population. This money, which today is sort of sitting a little bit underutilized, goes and shakes up a country like Zambia. I'll finish with this. When I was in Zambia, our resident representative invited me to her garden. I sit there in the garden, a big avocado tree. I said, “Oh, that's very nice.” She said, yeah, “When we came here, we dropped a pit and it grew.” Zambia is fantastic. Everything grows above the surface. Under the surface, you have everything. Very youthful population. I go to school, 80 kids in a tiny room, all of them eager to learn. If we are to have that money to flow into Zambia with good governance, what a fabulous story this will be. [Audience applauds]

[Joumanna Bercetche] I think that’s a wonderful place to end it. Thank you.

[Mohammed Al-Jadaan] Can I just comment? I think this is actually very interesting, and I've heard this so many times. You started with a question about China, and maybe it's about time, just that we set the record straight. There is no Chinese among us here. First of all, China stepped up when no one else did. I'm not their lawyer, but I just wanted also us to treat people fairly. China stepped up when people actually shied away from Africa, and China built infrastructure that they cannot carry with them to China, it will actually be in Africa. China took the risk when people didn't want to take the risk. Now, actually we are asking them to join us to actually materialize their risk taking. Instead of actually poking China, I think we should just appreciate that they did what they needed to do for their own interests, but also actually helped other nations. They are taking a risk, very high risk, which now they are actually collecting on that risk. We should just work with them. We should just show them love, work with them, and try to make the Common Framework work. Instead of just antagonizing them and actually damaging the low-income countries who need our help, we should just show China and other creditors as much love as we can for the interests of low-income countries who need to find solution to their debt. [Audience applauds]

[Kristalina Georgieva] Since you are the one here, since Minister Al-Jadaan is here as one of the big new sources of financing, why don't we show some love to him?

[Mohammed Al-Jadaan] Thank you. [Audience applauds]

[Joumanna Bercetche] Thank you. Panelists, thank you so much. This was a really enjoyable discussion. Lots of things to think about, but I want to end this really with a congratulations to the Finance Minister for that MOU and good luck in the coming years. [Audience applauds]

00:00 Welcome | Reform Priorities for Tackling Debt

02:36 Debt vulnerabilities: How worried should we be?

06:31 Debt challenges for lower-income and emerging market economies

09:52 Saudi Arabia: Recent initiatives to address debt and look to the future

14:22 Zambia: Debt restructuring program

23:41 Legal framework to facilitate debt restructuring processes

28:14 Getting out of the cycle of borrowing to fund more borrowing

34:27 Helping countries improve their resilience to shocks

39:19 Improving the framework: What else can the donor community do?

43:10 Zambia: Obtaining the necessary financing to face the challenges

48:37 Immediate priorities to help increase the trust in the system

51:04 Global financial architecture and global economy

57:28 Closure