A new conceptual framework for African sovereign debt : finding an optimal outcome that addresses five challenges

Abstract

The current arrangements through which African sovereigns raise and manage the external finance for sustainable and inclusive development in their countries are functioning sub-optimally. This troubling situation suggests that Africa needs a new approach to managing its sovereign debt and to restructuring the debt when servicing it becomes too burdensome. This paper argues that Africa is currently facing five challenges in regard to its sovereign debt and that addressing them requires a new conceptual framework that facilitates reaching an Optimal Outcome. This is defined as an outcome that, taking into account the circumstances in which the sovereign debtor and its creditors are negotiating their transaction and their respective rights, obligations and responsibilities, offers each of them the best possible mix of economic, financial, environmental, social, human rights and governance benefits.To make this case, the paper will focus on the case of sovereign debt restructurings. These transactions most clearly demonstrate the complexities and the challenges involved in reaching an Optimal Outcome in sovereign debt transactions. The paper is divided into 3 sections. The first section focuses on the five challenges that African countries are facing in managing and, when necessary, restructuring their sovereign debts. The second proposes eight principles, the DOVE (Debts of Vulnerable Economies) Fund Principles, that together offer a new conceptual framework for negotiating and drafting both new and restructured sovereign debt agreements. This new framework will help the sovereign and its creditors reach an Optimal Outcome. The third section draws some conclusions.