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The world is facing an unprecedented health and economic emergency due to the novel coronavirus disease (COVID-19) pandemic. It is the developing countries, however, that will be the most affected with a wall of debt service repayments throughout the 2020s, the United Nations Conference on Trade and Development (UNCTAD) warned in a new report.
In 2020 and 2021 alone, repayments on their public external debt are estimated to be nearly $3.4 trillion — between $2 trillion and $2.3 trillion in high-income developing countries and between $666 billion and $1.06 trillion in middle- and low-income countries.
The countries will face a hard time repaying the debt in time — the crisis will trigger record portfolio capital outflows from emerging economies and sharp currency devaluations in developing countries, according to the report.
The rupee fell to 76.02 against the dollar on April 24, 2020 from 71.3 on February 12, 2020 — a 6.6 per cent dip in two months.
“The international community should urgently take more steps to relieve the mounting financial pressure that debt payments are exerting on developing countries as they get to grips with the economic shock of COVID-19,” said UNCTAD Secretary-General Mukhisa Kituyi.
Global solidarity provided little support so far
United Nations Development Programme recently estimated the income losses to exceed $220 billion in developing countries. The UN agencies called for global solidarity to deal with the pandemic. A multi-partner trust fund for COVID-19 Response and Recovery announced by the UN Secretary-General along with the COVID-19 Solidarity Response Fund by the World Health Organisation have been important initiatives.
Richard Kozul-Wright, Director, UNCTAD’s globalisation division, said the measures were in the right direction. He, however, added that these have so far delivered little tangible support to developing countries.
The report suggested a ‘global debt deal’ for developing countries comprising three key steps to translate calls for global solidarity into action.
Automatic temporary standstills
These would provide macroeconomic ‘breathing space’ for all crisis-stricken developing countries and would free up the resources, normally dedicated to servicing external sovereign debt. Such a standstill, if long and comprehensive enough, would facilitate an effective response to the COVID-19 shock through increased health and social expenditure in the immediate future.
It would allow for post-crisis economic recovery along sustainable growth, fiscal and trade balance trajectories.
Debt relief and programmes restructuring
Relieving the countries of debt would ensure that the ‘breathing space’ gained by ‘automatic standstills’ is used to reassess longer-term developing country debt sustainability on a case-by-case basis.
Debt repayment worth $215million owed by 25 poorest developing nations was cancelled by the International Monetary Fund this month. Leaders of G20, too, announced suspension of debt repayments from 73 poor countries for the period from May to December 2020.
But the measures to write-off debts need to be more systematic, transparent and coordinated, said UNCTAD. The UN agency report reiterated the call for cancellation of debts of $1 trillion owed by developing countries to prevent economic disaster across the developing world.
Safeguarding future dealing
In the wake of global health emergency, both developing country debtors as well as developed nations’ creditors should make it a priority to safeguard and promote future mutual dealing suggests the UN agency report.
International Developing Country Debt Authority has been suggested by UNCTAD to oversee implementation of debt relief actions and lay the institutional and regulatory foundations for a more permanent international framework to guide sovereign debt restructurings in future.
The poorest and most vulnerable are the hardest hit by the pandemic and the crisis will affect the progress towards achieving the sustainable development goals.
Hence, the report provides a roadmap for the international community that may salvage the Agenda 2030 for sustainable development and contribute towards a more resilient and sustainable future for all countries.