Parliamentary Briefing: The UK’s role in tackling the debt crisis facing lower-income countries

Lower-income countries are trapped in a debt crisis that hinders their ability to meet the needs of their people or respond to the climate emergency, raising the risk of political instability.

In Africa alone, 32 countries now allocate more funds to external debt payments than to healthcare, while 25 spend more on debt repayments than on education. Efforts for urgent debt relief are stalled due to bilateral, multilateral, and private creditors failing to agree on how to share the debt restructuring burden. The G20’s initiatives have also fallen short, lacking strong measures to compel banks, hedge funds, and oil traders to participate in these restructuring efforts.

The UK has a unique opportunity to strengthen the legal framework to ensure that future restructurings under the Common Framework treat all creditors fairly, as in the case of the Ghana deal, without the long delays that have been seen up to now. 90% of bonds issued by countries eligible for the Common Framework are governed by English law, including all bonds of Zambia and Ghana, as well as countries like Kenya that need debt restructuring but are nervous of requesting it. By eliminating the risk of vulture fund litigation, UK legislation would provide clarity to negotiations and strengthen the hand of defaulting countries and responsible creditors in agreeing to equal treatment.