UN facility aims to boost Global South liquidity

The United Nations Economic Commission for Africa (ECA) published a proposal inviting private creditors into the government bond markets of African countries, using a liquidity and sustainability facility (LSF).

The ECA said its purpose was “to assist member states have access to a facility that will strengthen their liquidity in the short term and restart growth in the longer term”. The ECA has partnered with asset management corporation Pimco to set up the LSF “that would lower governments’ borrowing costs by increasing the demand for their sovereign bonds.

Daniela Gabor, of the University of the West of England Bristol, said: “To avoid more debt relief, what you need to do is to encourage institutional investors to come into your government bond markets to provide liquidity and to do that, you have to subsidise them, so we’re looking at very concrete proposals to subsidise private investors.”

She also advised against putting special drawing rights through multilateral development banks.

But a former chief of sovereign ratings at S&P rating agency, Moritz Kraemer, believes overindebted countries must get back to the table with the private sector and ignore the stigma attached to restructuring debt out of fear of being left out of capital markets.

Kraemer, who is now chief economist at Country Risk, said: “One third of the debt is with private creditors, but two-thirds of the interest burden is with private creditors, so they have to come into the boat, there is no other way.” — Tunicia Phillips