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African Sovereign Defaults and the Common Framework: Divergent Chinese Interests Grant Western Countries a “Consumer Surplus”
IFW
2024.06.13
? China has become a major player in sovereign lending towards Africa during the past two decades but has recently been faced with increasing defaults. A new African debt crisis is looming.
? Differences in the motives of sovereign lending between China and Western creditor countries contribute to preventing effective global sovereign debt management under the “Common Framework for Debt Treatment” in this looming African debt crisis. Chi-nese lending during the past two decades was motivated primarily by its own economic interests while most of the Western countries’ lending appears to be at odds with their self-interests but is not yet well-understood.
? Debt settlements under the Common Framework that involve China are less generous than past settlements with the Paris Club alone. This is an obstacle to a rapid and sus-tainable economic recovery of financially distressed African countries.
? Western countries derive a kind of “consumer surplus” from the agreements under the Common Framework because they are prepared to make greater concessions than Chi-na. They could transfer this hypothetical surplus as additional (conditional) Official De-velopment Assistance to the defaulted African countries to alleviate social hardship.