Preventing a global disaster demands widespread and concerted debt relief and significantly more financing.
The Covid-19 pandemic will not be defeated unless it’s defeated in all countries. In developing countries, where public health spending and the ability to purchase PPE, ventilators and intensive care beds is often severely constrained, significant debt cancellation will be necessary to deal with the double whammy of a health and economic crisis. Debt cancellation is the fastest way to free up money for governments to spend on addressing the needs of their populations during this pandemic.
The need for deep and broad debt relief has been acknowledged by leaders of G20 countries, the IMF and the UN, but to date rhetoric has not been matched with action. In April, the G20 finance ministers agreed to a temporary suspension of debt payments from the poorest countries. This agreement, known as the Debt Service Suspension Initiative (DSSI), is only the first step to providing an adequate solution to the crisis. Crucially, the agreement fails to mandate any action from private creditors (i.e. commercial banks and investment funds) or multi-lateral development banks, such as the World Bank – to whom many developing countries owe huge sums, often the largest part of their debt.
Failure to include private or multi-lateral creditors in the DSSI also means that the bilateral debt relief granted (as well as new loans given to these countries in need) is simply being diverted into the pockets of some of the richest investors in the world.
The Passing the Buck on Debt Relief: How the Failure of the Private Sector to Cancel Debts is Fuelling a Crisis Across the Developing World paper, issued ahead of the G20 finance ministers meeting, shows that despite the DSSI many of the poorest countries are spending more on servicing debt payments than they are on life-saving public services. The paper examines the size of the private debt burden in these countries and makes a case for the introduction of a mechanism that would make participation in a debt suspension initiative compulsory for all actors, including private and multi-lateral creditors who also need to bear the losses that are coming from this crisis.
The paper shows that:
- 64 developing countries were spending more on servicing external government debt payments than on health
- 44 countries were spending more on debt payments than on social protection and 23 countries were spending more on debt payments than on public education
- Total debt payments in 2020 to all creditors for the low-income countries included in the G20 DSSI debt suspension initiative amount to $42.7 bn for the year 2020, of which about $12 is covered by current standstill on bilateral credit, so rest (owed to private creditors and multilateral creditors) also needs to go on standstill.
- In 2019, 47 countries spent more on debt service payments than they received in foreign aid for healthcare.That’s significant for the aid advocacy people.
It is the duty of the international community to avoid a cascade of debt crisis in dozens of developing countries that are already facing a health, humanitarian, hunger and economic crisis like none before. Preventing a global disaster demands widespread and concerted debt relief and significantly more financing.