Tony Blair Institute Proposes $100 Billion Debt-Swap Facility to Break Africa’s Debt Spiral

A new policy paper by the Tony Blair Institute (TBI) proposes a $100 billion Debt Swap Facility with a reform-linked mechanism dubbed “Moving up the Ladder” to tackle crippling debt burdens faced by African economies. The nonprofit, founded in 2016 by former British Prime Minister Tony Blair, published A New Debt Deal for Africa: Moving Up the Ladder, this month as a follow-up to a foundational report from February.

The policy paper is grounded in a central debt injustice: African countries, with debt-to-GDP ratios often lower than the G7's, face interest rates four to five times higher. In 2023, African governments allocated 18% of revenues to interest payments, versus 3% in the EU and 5% in the G7. This often leaves scant resources for essential investments in education, healthcare, and infrastructure.

Ethiopia, which secured a debt restructuring deal with official creditors through the G20’s Common Framework in July, exemplifies this challenge. From the record 1.93 trillion Birr federal budget ratified for the current fiscal year, a staggering 39% of recurrent expenditures, or around 463 billion Birr is allocated for debt servicing. Notably, the allotment for debt servicing is 48 billion Birr more than funds apportioned to capital expenditures. 

Building on the prior report, A New Debt Deal for Africa: Breaking the Vicious Cycle, the latest paper develops the case for a debt facility that could refinance existing obligations at lower rates, promote better governance, and break the negative risk-perception spiral, without requiring new aid from donors.

TBI’s paper points out how a steep interest burden is often attributed to a "negative risk-perception cycle," whereby high interest rates hinder economic growth and weaken governments’ capacity to repay debt, thereby reinforcing lenders’ fears and perpetuating a self-defeating loop. 

“This results in weaker economies, fewer jobs, slow growth and depreciating currencies, feeding higher inflation, which in turn results in weak tax revenue, enhancing the perception that the government will be unable to repay debts in a self-fulfilling negative risk-perception spiral,” reads the paper. 

The proposed $100 billion debt swap facility would link lower-cost refinancing to measurable improvements in governance, assessed through the globally recognized Public Expenditure and Financial Accountability (PEFA) framework. It looks to replace costly external or domestic debt with concessional financing while incentivizing reforms to public financial management systems, improving budget reliability, expenditure control, and revenue generation.  

The facility would be administered by international agencies such as the African Development Bank or the World Bank, backed by donor guarantees to minimize risk without requiring upfront capital transfers. Countries that raise their PEFA scores would qualify for incremental tranches of financing, potentially up to $2 billion each. This performance-linked model is designed to create a virtuous cycle: stronger governance improves creditworthiness, reduces risk premiums, lowers borrowing costs, freeing fiscal space for investment in growth-critical sectors.

The study estimates that this facility could enable African countries to refinance up to 31% of their external debt, potentially saving some countries between $60 million and $100 million annually. It cites Côte d'Ivoire as an example of how the Debt-Swap Facility could refinance 31% of external debt from bilateral and private lenders, reducing average interest rates by 2.8 percentage points and saving $190 million annually in interest payments

TBI proposes a five-pillar strategy to unlock Africa’s fiscal potential. Governments must set credible budgets and strengthen financial management to build investor trust. Development partners should support tax reforms and technology transfer to boost revenue. Public spending must be reformed to cut waste, fight corruption, and deliver results. Creditors need patience, allowing growth through upfront investment rather than austerity. Finally, new low-cost refinancing tools should help countries swap high-interest debt for lower-rate alternatives linked to governance and economic performance.

Some historical precedents lend weight to the ambitious proposal. 

The Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI) programs of the early 2000s delivered debt relief to 37 countries, of which 31 were in Africa. During Tony Blair’s premiership (1997–2007), the UK was central to these efforts. While he was not the sole architect, the PM’s 2005 Commission for Africa advocated for increased debt relief, contributing to the conceptual shift that helped bring about the MDRI. 

Still, TBI’s latest proposal is set against a backdrop drastically different from that of the early 2000s. Initiatives like the G20's Debt Service Suspension Initiative (DSSI) struggled with creditor coordination, with private lenders participating minimally. Ethiopia, for example, is still negotiating with private bondholders over a proposed 18% haircut to a 2014 Eurobond’s principal, even after reaching an agreement with official creditors. The global geopolitical landscape is now multipolar, with increased bilateralism and varying national priorities, complicating multi-country initiatives.