Poorest nations face ‘lost decade’ from COVID-19 debt crisis, warns UN
Finance ministers from the Group of 20 industrialized countries will begin a two-day meeting in Jakarta, Indonesia on Thursday as many poor countries grapple with a growing debt crisis.
The coronavirus pandemic has seen many developing countries rack up large debts, which debt relief campaigners say is undermining their ability to provide basic services such as healthcare and education.
In an interview with VOA, Rebeca Grynspan, secretary-general of the United Nations Conference on Trade and Development (UNCTAD), said debt levels were already high before the pandemic but the situation had quickly deteriorated. aggravated.
“They are accumulating their debt and their export earnings are not enough to pay their debt. So this situation is already really dire for many of these countries,” Grynspan said.
Sri Lanka’s golden beaches and tropical jungles normally attract millions of tourists every year. The pandemic has cut off this source of income while successive global shutdowns have disrupted trade. Sovereign bond ratings have been downgraded and economists fear it could be the next country to default.
The coronavirus pandemic has pushed total global debt to its highest level in more than half a century, according to the World Bank. Lebanon, Suriname, Venezuela and Zambia have already defaulted on their sovereign debt.
Figures from the International Monetary Fund show that Ethiopia, Tunisia, Argentina, El Salvador, Ghana, Republic of Congo, Tajikistan and Mozambique are also at high risk of not being able to repay their debts.
Eric LeCompte, executive director of the Jubilee USA Network, which campaigns for debt relief for the poorest countries, said creditors must act now.
“The G-20 must deliver fast and deep debt relief and compel private creditors to match it. History teaches us that the longer we wait to resolve a debt crisis, the harder it becomes to resolve the crisis. “, he wrote in an e-mail.
Many developing countries have taken out loans during the pandemic. They now face large repayments, estimated by the World Bank at $35 billion in 2022, a 45% increase from the previous year, nearly half of which is due to China. In the meantime, economic growth forecasts have been revised downwards. Last month, the International Monetary Fund said global growth is expected to slow to 4.4% in 2022 from 5.9% last year.
“For the first time, the growth rate of developing countries is lower than the growth rate of developed countries, so in terms of the sustainability of this debt burden, we have where we are in a very high risk space, Grynspan told VOA.
The G-20 launched debt relief programs, including the Debt Service Suspension Initiative, which froze debt repayments during the pandemic.
“It’s in the right direction, but there are two issues,” Grynspan said. “The first is that it is a suspension, so countries will have to start paying in June this year while the crisis is not over. And, second, that the service impact of debt to total debt service of developing countries is very, very small.”
The G-20 also launched a debt reduction program in November 2020 known as the Common Framework. In the program, participating countries would agree to debt restructuring with bilateral creditors and the IMF, and then aim to obtain the same debt relief on loans to the private sector. However, only three countries – Chad, Zambia and Ethiopia – have requested assistance. So far, none have received debt relief.
Grynspan said many indebted countries are worried about the consequences.
“Many countries don’t want to come in because they will be punished by the markets,” she said. “And if they’re punished by the markets, their access to a private bond and the ability to go to the markets for funding will be really hampered.”
In response to the pandemic, the IMF issued special drawing rights — emergency currency, in effect — worth $650 billion. However, rich countries have been the main beneficiaries, drawing $400 billion from the fund.
LeCompte of the Jubilee USA Network said the G-20 should rectify the imbalance.
“The G-20 could assert leadership of a pandemic response vehicle that could accept special drawing rights donations from rich countries. The IMF’s Resilience and Sustainability Fund could finance affordable long-term loans to developing countries,” he said.
Warnings of a debt crisis come as borrowing costs rise sharply as central banks raise interest rates to fight inflation. Grynspan said creditor countries must take urgent action for debt relief. The alternative, she warned, is a “lost decade” for developing countries.