The author is an economist serving as Secretary-General of the United Nations Conference on Trade and Development.
There is a worrying tendency among the international community to make the debt of the developing world sustainable because it can be repaid after some sacrifice.
But that’s like saying the poor family will be stuck because they always pay back the loan sharks. To take this view is to overlook the upfront investment in education and underspending on health that is forced to make room for interest payments. This debt trap is a social catastrophe. Ten years from now, the debt will be repaid, but the family will be ruined.
This is the dilemma facing many developing countries, large and small. Epidemic Rising costs of living and interest rates have pushed them to the point where they can only pay off their debts through austerity or abandoned investment in the Sustainable Development Goals (SDGs). Their debts are sustainable in a way that they can repay, but otherwise unsustainable.
In addition, At its core, a full-blown development crisis with a debt problem threatens a new lost decade for most of the world’s economies.
The threat of a repeat 1980s-style debt crisis threatening global financial stability is considered marginal. But the public debt of developing countries, including China, will reach $11.5tn by 2021. According to some accounts, Bad debt problems in Chad; Large debt problems are limited to a small share of this figure, which is owed in very weak low-income countries such as Zambia or Ethiopia. .
But the situation is rapidly deteriorating. During the epidemic, In more than 100 developing countries (including China), government debt has ballooned to nearly $2tn, while incomes have stagnated while social spending has risen. Central banks are now raising interest rates, exacerbating the problem. Higher rates mean capital flight and currency depreciation in developing countries, increasing borrowing costs. These factors have pushed countries like Ghana or Sri Lanka into debt problems.
Developing countries will pay $400 billion in debt service by 2021, more than double what they receive in official development assistance. At the same time, Their international reserves fell by more than $600 billion last year, nearly three times what they received in emergency aid through IMF Special Drawing Rights allocations.
Thus, foreign debt is eating up a larger portion of ever-shrinking national resources. As inflation rises, more natural disasters occur, food and energy import prices rise, and countries need more help with emergency planning.
A more robust approach is required. Recent efforts by the international community to agree on major emergency debt measures have stalled. These are important efforts at the G20, but the common framework requires important improvements, such as the now-defunct debt service moratorium initiative and the extension to indebted middle-income countries to suspend payments during negotiations. Suffering. Yu.
The failure of these efforts highlights the complexity of the existing procedures, characterized by creditors refusing to participate in restructuring with unique powers of destruction. Crisis solutions are often too little, too late. The world does not have an effective system to deal with debt.
There is an urgent need for an independent sovereign debt authority that deals with creditor and creditor interests, both institutional and private. At least Authorities should provide integrated guidelines for suspending debt payments in disaster situations; The SDGs should be considered in debt sustainability assessments and expert advice should be provided to governments in need.
In addition, Public debt registries for developing countries provide access to debt data on both borrowers and lenders. It promotes debt transparency; strengthening debt management; It goes a long way in reducing the risk of debt distress and improving access to finance. Progress on both these fronts could begin with an independent review of the G20 debt agenda: India’s presidency could bring a historic opportunity to succeed where others have failed.
Addressing the current global debt crisis is not just a moral imperative. In the context of a growing climate and geopolitical crisis; It is one of the biggest threats to world peace and security and financial stability. Without sustainable support, countries cannot realistically repay their debts.