In a new working paper, the Director of the Global Development Policy Center, Kevin P. Gallagher, and Non-Resident Senior Research Fellow, Yan Wang discuss debt sustainability in the Southern Africa region and the role of China as a lending partner and lay out policy options for alleviating the debt burden.

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The COVID-19 pandemic has laid bare the fact that the “hyper-globalization” has made it impossible to contain crises within national borders. Multilateral international cooperation is no longer a choice but a necessity. This paper attempts to address debt sustainability issues from two different angles for SADC countries—a conventional “Debt-to-GDP ratio” approach and a “public sector balance sheet” approach. In addition, the researchers assess whether and to what extent Chinese debt is a significant source of debt distress. To the extent the authors find certain creditor groups to warrant restructuring, we develop a series of potential policy options for alleviating the debt burden of countries in debt distress.

Section 1 provides an overview of the economic impact of COVID-19 on SADC countries. Section 2 reviews the previous literature related to debt sustainability and the Heavily Indebted Poor Countries (HIPC) initiatives; Section 3 examines the sovereign debt situation using the traditional debt-to-GDP ratio, Section 4 introduces an approach focusing on asset and liabilities — the public- sector balance sheet approach. Section 5 discusses the patient capital that is important for sustainable development; and Section 6 presents a few policy options.

Download the Working Paper