It is not in dispute that many African countries are facing a sovereign debt crisis. While debt financing is crucial for development, if contracted irresponsibly, it can also result in overly onerous debt repayment obligations that restrict the ability of governments to provide public goods and social protection. It is, therefore, essential for there to be transparency and accountability in the contraction of debt.
During the PALU conference, which took place in Livingstone, Zambia, the role of the legal profession in the sovereign debt crisis was considered. It was agreed that lawyers play a critical role that includes the drafting of sovereign debt contracts during debt negotiation and debt restructuring, the resolution of disputes as well as the legal challenge of illegal and hidden debt.
This blog will illustrate how lawyers, through public interest litigation, can ensure that governments are held accountable when contracting sovereign debt by considering the Zimbabwe Coalition on Debt and Development (ZIMCODD) case and the lessons to be learned.
The Zimbabwe Sovereign Debt case was a public interest case brought by ZIMCODD and two social justice activists against the Minister of Finance of Zimbabwe. The case challenged the breach of the Constitution of Zimbabwe and the Public Debt Management Act (PDMA) in the contraction of sovereign debt.
The Constitution requires an Act of Parliament to set public debt ceilings. It also requires an Act of Parliament to set the conditions under which loans could be guaranteed. In addition, it requires the publishing of the terms of loans and guarantees and the tabling of a statement on Zimbabwe’s public debt. Finally, it requires parliamentary approval before any arrangements with foreign entities can be binding.
The Public Debt Management Act (PDMA), on the other hand, requires public debt not to exceed a limit set out in the Finance Bill or by the National Assembly. The Act also limits the amount of debt that can be contracted to not more than 70% of the Gross National Product. Furthermore, the PDMA requires the Minister to give reports twice a year on the performance of state loans and guarantees.
ZIMCODD challenged sovereign debt’s legitimacy by highlighting that the debt had been contracted in breach of the terms of the Constitution by not seeking National Assembly approval. The government had also guaranteed an onerous amount of debt which had placed an undue burden on the state and resulted in unsustainable levels of debt in the country.
ZIMCODD won the case with consent orders being made for the Minister of Finance to propose a limit for public borrowing. The High Court also ordered the Minister to publish a Bill amending the Public Debt Management Act to require Parliamentary approval to be given before the approval of loans and state guarantees, to set limits for borrowing, and to lay down procedures for the ratification or rejection of loans and guarantees.
This case demonstrates the importance of utilising judicial advocacy for the achievement of good governance. The significance of having parliamentary oversight ensures that the Ministry of Finance, which is a member of the executive, can be held accountable to the public through its legally appointed representatives in Parliament. This public oversight can ensure transparency in the incurrence of public debt and can ensure the uncovering of illegitimate borrowing and hidden debt.
While this was a big win for ZIMCODD, the challenges faced included the lack of legal expertise, political interference, lack of access to information, and the high costs of the litigation.
The role of the legal profession is thus central to guarding the interests of members of the public and ensuring transparency and accountability.
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