During the United Nations Conference on Trade and Development (UNCTAD) has warned that ‘developing countries can face impossible trade-off on debt’, and that spiraling debt in low and middle-income countries has compromised their chances of sustainable development.
The Pandemic has stressed the list of EMDEs in debt distress as rich nations and institutions dominated by them, e.g., the World Bank, failed to provide any meaningful debt relief or increase financial support to adequately respond to the health and economic crises. The World Bank’s chief economist has advised that “first fight the war, then figure out how to pay for it”. The IMF’s managing director counseled, “Please spend, and spend as much as you can, but keep the receipts”. World Bank International Stats 2022 has revealed that the external debt stock of low and middle-income countries rose to $9.3 trillion, more than double a decade ago in 2010.
World Bank reveals that total debt in emerging markets and developing economies reached an all-time high of around 170% of GDP. Total debt in low-income countries reached 120% of GDP in the 1990s leading to an increase of 67% of GDP in 2018. The development needs of developing countries have increased many-fold, especially for meeting internationally agreed development goals, such as the Millennium Development Goals (MDGs) and now Sustainable Development Goals (SDGs). Several international organizations and formed allies have failed to the aid promises that they have made to help the developing nations. G7 and other rich OECD countries have broken their 2009 promise to give $100 billion annually in climate finance until 2020. The rich nations have further failed spectacularly to honor their promises of finance made at the 2015 UN conference on financing for development (FfD) in Addis Ababa.
As pandemic debt distress became obvious, G20 countries devised the so-called Debt Service Suspension Initiative (DSSI) for the 75 poorest countries, supposedly to provide some modest relief between May and December 2020. They do not cancel on debts but only delay re-payments which need to pay in full with the interest cost. Private lenders have refused to join the G20s initiative, unsurprisingly only 3 countries expressed interest in DSSI. IMF acted innovatively at the start of the pandemic debt distress with debt service cancellation for 25 eligible LICs (estimated at $213.5 million), the World Bank’s Chief refused to supplement let alone complement the IMF’s debt service cancellation for the most vulnerable LICs.
The rising debt services at the time of higher import costs, falling export revenues, and declining remittances, are forcing developing countries towards a damaging trade-off. They further are forced to service external debt owed to rich nations and international financiers at the cost of development.
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