Sixty-nine of the world’s poorest countries have an outstanding debt repayment of $19.5bn to foreign governments and multilateral lenders in 2021. These countries are also bound to repay $6bn to external private lenders this year alone.
But they cannot afford to, as a Eurodad report confirms.
The International Monetary Fund (IMF) reported that about half of the world’s 80 poorest countries have unsustainably high external debt that constrained development before the pandemic. For example, Ecuador grappled with a crippling debt crisis before the pandemic. Since 2015, the country’s public debt has more than doubled to nearly 69 percent of its Gross Domestic Product (GDP). Consequently, almost a third of its revenues go to meeting creditor claims, leaving a gaping hole in Ecuador’s public health budget and education budget.
The pandemic and ensuing economic lockdown have exacerbated the issue in developing countries, further exposing vulnerable populations – women and female children – to domestic abuse and exploited labor.
Already, the IMF has made $50bn available in emergency financing targeted at countries with weak health systems struggling with the pandemic. The World Bank also responded in kind by providing a $14bn response package to the most vulnerable economies. This package will support economies buckling under the health and fiscal impact of the virus.
But these monies will not be enough, and the world’s institutional creditors must look long-term with debt reduction and debt canceling where possible.
Debt reduction and debt service suspension for the world’s poorest countries are not sustainable due to the aftermath of the global health crisis, which has pushed world economies into a recession. Many of these countries have lost decades of economic progress in a single year. These countries will still have to pay off crippling debt.
Canceling debt has been effective in the past.
When millions campaigned as part of the Jubilee 2000 movement that called on the world’s wealthiest governments to cancel the debt for the world’s poorest countries, there was a resounding success. The world’s wealthiest countries agreed to cancel more than $100billion of debt owed by 35 of the world’s poorest countries.
This debt cancellation improved the health and education indices of countries like Ethiopia, which was able to increase spending on health and education by 10 percent, and Malawi, which saved US$110 million each year, better invested in education for its vulnerable young population.
Fast forward twenty years later, as the post-COVID financial crisis is projected to shrink the world’s economy by 4.9%, we must consider debt cancellation again for countries that cannot afford it to repay even reduced debt.
Before the pandemic, many low-income countries were in debt distress or at elevated risk of debt distress. Debt makes residents of these countries more vulnerable than ever.
Since the World Health Organization declared the Coronavirus a pandemic in March 2019, 1.5 billion children have missed out on school, and 10 million children may never return, especially girls who now risk female genital mutilation and are forced into early marriage.
These children are also exposed to hunger, domestic violence, arm conflicts, and underage labor.
And without urgent debt cancellation, their future hangs in the balance as their governments weigh the options. Eventually, most will be forced to choose debt repayments, which boosts their credit rating with institutional and private lenders.
However, paying money they cannot afford will further cripple access to essential health and education services for children who need it the most.