As solutions to the current debt crisis have yet to be found, progress is urgently needed. The end of the G20’s Debt Service Suspension Initiative (DSSI) in December 2021 means countries should resume paying their debts despite a deteriorating global backdrop, particularly for middle-income countries (MICs ) and low income (LIC).
Of the 73 DSSI-eligible LICs, only 43 have requested a total of $13 billion in debt service suspension – just a quarter of the amount the G20 announced the DSSI would provide in April 2020 (to see Observer Winter 2021). The fact that the DSSI only temporarily suspended bilateral debt payments, as well as the lack of involvement of the private sector in the program, contributed to the inefficiency of the mechanism. This happened despite warnings from civil society (see Mail Annuals 2021) and IMF management acknowledging that “it is also essential that private sector creditors implement debt relief on comparable terms”.
A January analysis by the UK-based Jubilee Debt Campaign (JDC) found that “54 countries around the world are in debt crisis, which means that paying the debt undermines the ability of governments protect the fundamental economic and social rights of their citizens”. According to an article by the American think tank Atlantic Council, “these low-income countries face debt service payments worth $11 billion more this year… threatening to crowd out public spending.” health, social services and other development needs”.
On January 18, World Bank President David Malpass tweeted“With too many developing countries facing record levels of external and domestic debt, we can’t afford to wait any longer. The world’s poorest urgently need deep debt relief, increased debt transparency and a rebalancing of creditor/debtor power.
Deepening Divergent Recovery
The DSSI has done nothing to settle the countries’ long-term debt obligations, which have been exacerbated by the pandemic. On top of that, the Ukraine crisis will worsen the outlook for many already over-indebted countries (including in sub-Saharan Africa) as the cost of importing key commodities rises, exacerbating their balance of payments difficulties, including their ability to repay their debts (see Observer spring 2022). Meanwhile, over-indebted countries like Zambia are being forced to repay private creditors like BlackRock, to the detriment of the well-being of their own people.
The already divergent recovery from the Covid-19 pandemic will likely be exacerbated by adjustments by high-income countries (HICs) to their monetary policies as their economies begin to recover. As the IMF noted in an April 2021 blog, MICs and LICs will be affected by rising interest rates in LICs, as these divert capital from MICs and LICs, resulting in a depreciation of their currencies and therefore an increase in their debt securities issued. in foreign currencies. The Ukrainian situation has exacerbated this trend, as in times of crisis investors seek safety in assets such as the US dollar. This strengthens the dollar against other currencies, exacerbating the above trends.
The measures taken so far to address the debt situation caused by the pandemic have been insufficient, as they have failed to cancel the debt as demanded by academics and civil society (see Observer Winter 2021). Numerous calls from CSOs, academics and debt experts for a UN-based debt restructuring mechanism which, as noted by Patricia Miranda of the CSO Network of America of South and Central America Latindadd, “guarantees[s] a future of responsible lending and borrowing and regulation based on human rights and gender justice”, have not materialized (see Mail Annuals 2020).
In addition, other structural issues that contribute to the worsening debt crisis and uneven pandemic recovery, such as the IMF’s policy of surcharges (see Inside the Institutions, What are IMF surcharges; Mail spring 2021) and the restrictive institutional vision of the IMF on capital controls (see Observer Spring 2022) must also be addressed if the world is to resolve the current debt crisis, which will continue to hit the poorest and most vulnerable the hardest.