Civic dividends in debt reform
More than half of low-income countries as well as five major European nations bear distressing levels of debt. The problem has been exacerbated by the high interest rates many central banks have imposed to slow inflation. Yet agreements reached last week between lenders and two borrowing states mark a promising trend in the other direction.
On June 26, Sri Lanka announced it had reached a deal with India, France, Japan, and China to restructure how it pays back the billions of dollars it owes them. Two days later, Ghana announced it had reached a similar arrangement with the International Monetary Fund.
The agreements open a critical path toward economic stability in the two countries. Both defaulted in 2022, sparking severe shortages and popular unrest. But the agreements also show that on at least one critical global issue, the international community is forging more cooperation than conflict.
“The progress achieved so far shows how the world can work together to reduce risks,” the IMF noted last week. “These improvements are possible in part because stakeholders have developed more experience working together ... [and] building trust.”
That new cooperation, allowing deals to be reached in months rather than in years, owes its vigor in part to two factors. Western creditors are gradually finding more ways to either coax more transparency from the world’s more opaque lenders – China, India, and Saudi Arabia – or work around them. Just as important, they are helping to nurture more civic confidence in debt-burdened societies by partnering with governments to address corruption.
In Sri Lanka, for example, Japan has launched initiatives with lawyers and prosecutors to boost the country’s ability to counter money laundering. In Ghana, the IMF is helping strengthen standards for tax administration and boost transparency in state agencies. The agreement to restructure $5.4 billion in debts involves both the Paris Club, made up of Western donors, and China.
The deals reached in Sri Lanka and Ghana give both countries access to critical additional funding as both show progress in reforming their economies. They provide a model for more efficient cooperation on debt relief in other fragile nations, such as Ethiopia. For ordinary citizens, that may eventually translate into stable prices and greater opportunity.
A recent meeting in Ghana illustrates perhaps an even more transformative effect. When traditional leaders in the country’s northwestern region met with Vice President Mahamudu Bawumia, they acknowledged his “principles, honesty, accountability and transparency in governance and devotion to duty.” Those qualities, they said, gave them confidence. Restructuring economies starts with renewing civic faith through integrity.
