World’s Poor Hit by Double Jeopardy: a Deadly Virus & a Devastating Debt Burden
By Thalif Deen
UNITED NATIONS, May 7 2020 (IPS) - The world’s poorer nations, reeling under an unrelenting attack on their fragile economies by the COVID-19 pandemic, have suffered an equally deadly body blow: being buried under heavy debt burdens.
Abiy Ahmed, prime minister of Ethiopia who was awarded the Nobel Peace Prize in 2019, said last week that in 2019, 64 countries, nearly half of them in sub-Saharan Africa, spent more on servicing external debt than on health.
Ethiopia alone, he said, spends twice as much on paying off external debt as on health. “We spend 47 percent of our merchandise export revenue on debt servicing”, he wrote in an oped piece in the New York Times.
According to the UK-based Jubilee Debt Campaign, some of the countries battling debt burdens include Lebanon, which spends about 41% of its revenue on debt service; El Salvador, which spends 38% of its revenues on debt service; and South Sudan, which spends 29%.
And these are not necessarily the most highly-indebted poor countries in the world — Sri Lanka pays 48% of its revenue in debt service, and Angola 43%.
On April 15, the Group of 20 countries (G20) offered temporary relief to some of the world’s lowest-income countries by suspending debt repayments until the end of the year.
But, regrettably, their best offer fell far short of expectations.
Secretary-General Antonio Guterres has called for a “debt standstill” across all developing countries affected by debt vulnerabilities. This includes external public and commercial debt.
“The private sector’s voluntary and well-coordinated engagement in debt relief discussions is crucial”, he adds.
In 2020, “we expect to lose the equivalent of more than 300 million jobs; a decline in global trade between 13 and 32 per cent; remittance flows to low‐ and middle‐income countries to drop by around 20 per cent; and foreign direct investment to decline by 35 per cent,” the United Nations warned last week.
Clemence Landers, a Policy Fellow at the Washington-based Center for Global Development (CGD), told IPS the G20 bilateral debt suspension is a good start, but it’s only a temporary stopgap measure.
In the months ahead, she pointed out, it will be clear that some countries need deeper and more permanent relief.
“The global community should use this time to establish the broad contours of an orderly debt relief process that distributes the burden equitably between all bilateral and commercial creditors”.
In parallel, argued Landers, the international financial institutions should find ways to deploy financing packages above levels that they have already announced to ensure that net flows to countries are robust. But an effective and orderly process is far from a given.
“It will largely hinge on the G20’s ability to provide an ambitious plan and maintain strong political pressure to achieve a coordinated approach,” she declared.
Professor Kunal Sen, Director United Nations University– World Institute for Development Economics Research (UNU-WIDER), told IPS the recent announcement by the governments of the G20 countries of a debt moratorium for the poorest countries is a welcome initiative as it allows these countries to allocate the funds that would have gone to service external debt to deal with the immediate needs of the pandemic.
According to Jubilee Debt Campaign, the suspension covers debt payments by 77 countries to G20 and other governments, from 1 May to the end of 2020, estimated to be $12 billion.
The payments will not be cancelled but come due to be paid between 2022 and 2024, along with interest accrued in the meantime. There will be a review by the G20 before the end of 2020 as to whether further action will be taken.
The G20 announcement also calls on private creditors to similarly suspend debt payments, and calls on multilateral creditors to explore options for doing so.
The G20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Republic of Korea, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the European Union (EU).
The Ethiopian Prime Minister said at the very least, the suspension of debt payments should last not just until the end of 2020 but rather until well after the pandemic is truly over.
“It should involve not just debt suspension but debt cancellation. Global creditors need to waive both official bilateral and commercial debt for low-income countries,” he declared.
Richard Ponzio, Senior Fellow and Director of the Stimson Center’s Just Security 2020 Program, told IPS the G20 Finance Ministers wisely agreed on a ‘time-bound suspension of debt service payments’, between now and the end of the year, for 77 of the world’s poorest countries.
“Now it’s time for private creditors, who are owed USD $3 billion (or a quarter of total debt), to step up and participate in this initiative,” he noted.
Since the COVID-19 pandemic continues to affect countries in different ways, once they begin to transition from the current emergency to a full recovery phase, the G20 should revisit the need to sustain this policy, in 2021 and 2022, on a country-by-country basis, with the goal of helping all countries adversely affected by the pandemic to get back-up on their feet, Ponzio declared.
Anuradha Mittal, Executive Director at the Oakland Institute, a leading US-based policy think tank, told IPS the Covid-19 pandemic has unleashed a crisis of untold proportions – the disastrous impact of which is being felt by the poorest and poor nations.