Scholars and public finance policy specialists from the Global South want an overhaul of the Debt Sustainability Analysis framework used by the Bretton Woods institutions (the World Bank and the International Monetary Fund) for its grave shortcomings.

At a conference in Accra, Ghana on Africa’s debt crisis, scholars affiliated to the International Development Economic Associates Africa Network and the African Forum and Network on Debt and Development said the debt sustainability framework does not favour economies in the Global South, worsening current fiscal pressures.

“I was on the World Bank side of the debt sustainability analysis for a number of years, and I have realised they have a major conceptual problem. They are plagued by an over-optimism bias which has to do with exaggerated projections of growth; they do not incorporate climate shocks; they are done secretly, and private creditors are not involved and so they systematically under-estimate the haircut that is needed for countries to resume what is a stable solvency situation”, said Ali Zafar, UNDP economic adviser and currently involved in advising Ethiopia’s government on external debt.

Read: Africa needs new economic models amid external shocks

Mr Zafar also highlighted the outsized role of China as a creditor to African economies and called for a change in its debt restructuring negotiations.

According to Boston University’s China Loans to Africa database, the cumulative loans from China to Africa between 2000 and 2022 stood at $170.0 billion.

The scholars also want a framework which will compel creditors to come to the negotiating table and accept haircuts; that is a reduction in the outstanding principal or interest payments – a radical shift in the global debt resolution architecture.

On November 13, 2020, Zambia missed a $42.5 million coupon payment on its debt and became the first African economy to default in the Covid-19 era. It was not until March 25, 2024, that the economy managed to ink a deal with its bondholders on viable terms for the restructuring of its $3.5 billion debt.

On December 19, 2022, Ghana announced suspension of debt service payments on Eurobonds, commercial term loans and most of its bilateral debt and effectively entered default territory. More than two years later, Ghana is yet to seal a deal with creditors on debt restructuring.

“...we need to have a law in place, that will allow us to force the private creditors to come to the table and what is not an IMF determined haircut but one determined on the basis of a transparent understanding of what constitutes comparability of treatment”, says Prof CP Chandrasekhar of the Centre for Economic Planning at the Jawarhlal Nehru University who presented a paper on debt restructuring at the conference.