Fears grow that US inflation action could trigger debt crisis | Inflation
Fears are growing that the US central bank’s action to tackle high inflation could trigger a new debt crisis, as it emerged that repayments from poor countries to creditors were already at their highest level in two decades.
The Jubilee Debt Campaign said developing country debt payments had more than doubled since 2010 and were likely to rise further if, as expected, the Federal Reserve raised interest rates.
Calling for more debt relief, the JDC said payments to creditors already accounted for 14.3% of public revenue in poor countries in 2021, up from 6.8% in 2010 and the highest level since 2001.
Many poor countries have borrowed in US dollars, exposing them to the double risk of higher borrowing costs and a weakening of their currency against the greenback.
The World Bank and International Monetary Fund have called for more comprehensive relief. Of external debt payments by low- and lower-middle-income governments, 47% goes to private lenders, 27% to multilateral institutions such as the Bank and the IMF, 12% to China, and 14% to private lenders. governments other than China.
Heidi Chow, Executive Director of Jubilee Debt Campaign, said: “The debt crisis has already robbed countries of the resources needed to deal with the climate emergency and continued Covid disruptions, while rising interest rates interest threatens to plunge countries into even more debt. ”
The campaign group’s latest analysis found that 54 countries were in a debt crisis, defined as a situation where payments undermined a government’s ability to protect the basic economic and social rights of its citizens. Kenya and Malawi were among the countries that had been added to the list of countries in crisis, he added.
“G20 leaders cannot continue to sit in the sand and wish the debt crisis would go away,” Chow said. “We urgently need a comprehensive debt cancellation program that compels private lenders to participate in debt relief.”
The G20 created a new debt relief program at the end of 2020, called the Common Framework, which required countries to negotiate terms with bilateral sovereign creditors and the IMF, then enter into the same agreement with private creditors. . So far, none of the countries that have applied for the Common Framework have had their debt cancelled.