Financial Negotiation skills critical for debt contraction.

The development finance landscape has evolved significantly over the past decade, especially the dwindling foreign grants and concessional loans while new creditors providing non-concessional loans have emerged. The declining concessional financing comes at a time when governments have significant financing requirements. Due to the large infrastructure gaps, coupled with limited efforts in domestic revenue mobilisation, most developing countries are borrowing heavily from the non-traditional creditors and international capital markets. In this regard, there is need for governments to be abreast with the available financing options, including the terms and conditions. This knowledge is particularly useful for governments during negotiations with creditors and other lenders.

A country’s negotiating capacity has a direct bearing on the terms and conditions and cost of borrowing. Through adequate preparation and appropriate negotiation skills and strategies, governments can effectively influence the outcome of loan and grant agreements. However, governments in developing countries face the challenge of ensuring an appropriate mix of skills to undertake effective negotiations.

In order to address capacity gaps in loan negotiations, MEFMI offered an E-learning course on Financial Negotiation Skills and Techniques from 5 November to 7 December 2018. The course aimed to introduce participants to the key elements in financial negotiation. Specifically, by the end of the course, participants were expected to:

• Demonstrate familiarity with the global negotiating environment;
• Understand what negotiation is and is not;
• Understand financial agreements, especially the terms and conditions of various creditors including the development areas they cater for;
• Evaluate and compare different financing options; and
• Appraise the role of different players in negotiations, including lawyers, sector ministries, Ministries of Finance and Economic Planning, and Central Banks.

The course covered the following core areas in a weekly modular form:

• Module 1 on Introduction to Loan Cycle expounded the different stages of the loan cycle, from conception of the borrowing need up to loan maturity i.e. from planning to full repayment.
• Module 2 on Negotiation Theory and Practice introduced participants to the various stages of negotiation, including the key processes and preparations for negotiations. In addition, it highlighted the various players involved in the negotiation process as well as their roles. The module also covered the possible pitfalls in negotiation and how these can be avoided or addressed.
• Module 3 on Evaluating Sources of Financing focused on the various options available to developing countries. It also outlined the terms and conditions of the alternative borrowing sources to enable governments to make informed choices when identifying and selecting funding options
• Module 4 on Anatomy of Project and Legal Agreements focussed on the key clauses in the financial agreements and their interpretation.
• Module 5 on Debt Renegotiation introduced participants to the debt restructuring processes. Specifically, it presented “other developments” in the loan cycle that may occur which may inhibit the borrower’s ability to meet the loan obligations and may necessitate re-negotiation of the agreed loan terms. It also focused on the strategies to be used when engaging specific creditors for debt restructuring.

A total of 43 participants drawn from the MEFMI region participated in the course. The course mentors were Messrs Nardeo Useree (an independent debt management expert and consultant from the United Kingdom), Nations Msowoya of the Ministry of Finance in Malawi and Ms Josephine Tito of the MEFMI Secretariat. 

The main output of the Course was that it enhanced the participants’ understanding of the key issues relating to negotiating loan contracts. Of the 43 participants who enrolled and attempted at least one module, 32 completed all the course Modules, representing a completion rate of 74%. MEFMI expects the participants to use the knowledge and skills gained during the course to effectively participate in the financial negotiations between their governments and creditors or donors.