Finance ministers from the Group of 20 industrialized nations will begin a two-day meeting in Jakarta, Indonesia, on Thursday as many poorer nations deal with a growing debt crisis.
The coronavirus pandemic has seen many developing countries build up large debts, which debt-relief campaigners say undermines their ability to provide basic services such as health care and education.
In an interview with VOA, Rebeca Grynspan, secretary-general of the U.N. Conference on Trade and Development (UNCTAD), said that debt levels were already high before the pandemic but that the situation had worsened rapidly.
“You have them building up their debt, and their export earnings not being enough to pay for their debt load. So this situation is really dramatic already for many of these countries,” Grynspan said.
Sri Lanka’s golden beaches and tropical jungles normally attract millions of tourists every year. The pandemic cut off that source of income while successive global lockdowns disrupted trade. Sovereign bond ratings have been downgraded, and economists fear it could be the next country to default.
The coronavirus pandemic has driven 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 Ethiopia, Tunisia, Argentina, El Salvador, Ghana, Republic of Congo, Tajikistan and Mozambique are also at high risk of being unable to pay their debts.
Eric LeCompte, executive director of the Jubilee USA Network, which campaigns for debt relief for poorer nations, said creditors must act now.
“The G-20 needs to offer speedy and deep debt relief and compel private creditors to match it. History teaches us that the longer we wait to address a debt crisis, the more difficult it becomes to solve the crisis,” he wrote in an email.
Many developing nations took out loans during the pandemic. They now face big repayments, estimated by the World Bank at $35 billion in 2022 — an increase of 45% from the previous year, with almost half of that owed to China. Meanwhile, economic growth forecasts have been cut. Last month, the International Monetary Fund said global growth is expected to slow to 4.4% in 2022, down from 5.9% last year.
“For the first time, the rate of growth of the developing countries is less than the rate of growth of the 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 has launched debt relief programs, including the Debt Service Suspension Initiative, which have frozen debt repayments during the pandemic.
“It is in the right direction, but it has two problems,” Grynspan said. “One is that it’s a suspension, so the countries will have to start paying in June this year while the crisis is not over. And, secondly, that the impact in terms of debt servicing with respect to the total debt servicing of the 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 secure the same debt relief on private-sector loans. However, only three countries — Chad, Zambia and Ethiopia — have come forward for help. So far, none has received any debt relief.
Grynspan said many indebted nations are nervous about the consequences.
“Many countries don’t want to come in, because they will be punished by the markets,” she said. “And if they are punished by the markets, their access to a private bond and the possibility of going to the markets to finance themselves will be really hindered.”
In response to the pandemic, the IMF issued Special Drawing Rights — an emergency currency, effectively — worth $650 billion. Wealthy nations were the main recipients, however, drawing $400 billion from the fund.
LeCompte of the Jubilee USA Network said the G-20 should rectify the imbalance.
“The G-20 could affirm the direction of a pandemic response vehicle that could accept donations of Special Drawing Rights from wealthy countries. The IMF’s Resilience and Sustainability Trust could fund long-term, affordable loans to developing countries,” he said.
The warnings of a debt crisis come as borrowing costs are rising sharply, with central banks ramping up interest rates to tackle inflation. Grynspan said creditor nations must take urgent action on debt relief. The alternative, she warned, is a “lost decade” for developing countries.