Opinion: Now Is The Time To Cancel The Global South’s Debt


We need to go far beyond debt restructuring to support Global South nations in stabilizing their economies and health care systems.


After years of neoliberalism stripping public services bare, many African countries do not have the means to cope under the weight of Covid-19 (1). Furthermore, numerous African countries were already in precarious economic positions. This has left them extremely vulnerable to the profound depression that seems likely to come. Making matters worse are the debt interest payments that need to be paid to Global North countries as well as the IMF and the World Bank. These total to around $44 billion in 2020 (2). 

African finance ministers met online on March 23 to discuss the impact Covid-19 will have on their respective economies. A debt restructuring, specifically a moratoria on all debt interest payments, was agreed on as being essential (3). This will go some way to freeing funds desperately needed to bolster healthcare systems and keep economies afloat. Following this, the World Bank Group President David Malpass called on the G20 members to pause collecting interest on bilateral Development Assistance related debt, which amounts to slightly less than half of the $44 billion requested (4) (5). This is because it does not include debt interest payments to multilateral organisations such as the World Bank, the IMF, or to the private sector. Furthermore, he did not hesitate to beat the usual World Bank drum of structural reforms insisting that countries would need to adopt a slew of World Bank and IMF approved policies. 

Debt restructuring, however, is not enough. Every cent sent out of Africa is a cent that could have gone to stabilising the economy and supporting the healthcare system.  Now seems as good a time as any to not only pause debt interest payments but to cancel them altogether. Organisations such as the Jubilee Debt Campaign have already called for all Global South debt to be cancelled (8). This idea is not unprecedented. Following the debt crisis of the 1980’s and the concurrent implementation of Structural Adjustment Programs African countries had been saddled with, not only extremely high levels of external debt, but also neoliberal policies imposed by the Bretton Woods institutions via conditions on loans that had hamstrung their development. Debt levels continued to rise until 1996 when the IMF and World Bank started the Highly Indebted Poor Countries Initiative (HIPC) “with the aim of ensuring that no poor country faces a debt burden it cannot manage” (6); although this had very little immediate impact due to the criteria for eligibility. In 2005, a far more comprehensive debt relief programme was launched by the G-8 countries known as the Multilateral Debt Relief Initiative (MDRI). 14 African countries were eligible (7). The intention then, as it should be now, was to free up funds necessary for development. The MDRI was criticised for not being far-reaching enough and came with various conditions that corresponded with the usual neoliberal agenda of the IMF and World Bank. A precedent has been set by these initiatives, although we must learn from their mistakes and subsequent failures if the proposed debt jubilee is to be successful. 

Prior to the outbreak of Covid-19, the IMF estimated that around half of sub-Saharan nations were facing a debt crisis (9). Now, many African countries are facing a global economic situation in which it is becoming more and more difficult to make debt payments. Commodity prices, including oil, coffee, and copper, are at their lowest point since 1986 falling 27% since just the start of 2020. In addition, the growing demand for US dollars, as a result of Covid-19, is worsening exchange rates for indebted countries and thus making it even harder to finance their dollar-denominated debt payments. As an example, Zambia which was one of the countries already facing a debt crisis with 30% of government revenue going towards financing debt payments, is facing default with speculators selling off government debt (8).

Covid-19 could very well change the face of many heavily indebted countries’ economies so there is no telling when, or even if, debt payments could resume. Furthermore, it is partly due to debt, and the conditions that came with it, that we are in this mess. More than 50 low income countries worldwide spend more on debt financing (7.8% of GDP) than on healthcare (1.8%). IMF conditionality has resulted in underfunded public healthcare systems that now have to protect citizens from a global pandemic (3). It therefore seems the best way forward would be to simply cancel the external debt of heavily indebted countries with no conditions or policy criteria to be met. It is clear that the conditions have only contributed to making matters worse and without them many countries would be in a better position to develop and better prepared to protect their citizens from threats such as Covid-19.

Covid-19 is going to expose weaknesses in the global economy as well as its healthcare systems. Countries in the Global South – primarily due to historic reasons – are going to be hit the hardest. Eliminating external debt will go a long way to mitigating the socio-economic effects of the pandemic.

References

[1] Simeoni, C. (2020, March 11). Why Nigeria knows better how to fight corona than the US. International Politics and Society. Retrieved from https://www.ips-journal.eu/regions/africa/article/show/why-nigeria-knows-better-how-to-fight-corona-than-the-us-4144/
[2] United Nations Economic Commission for Africa. (2020, March 23). African Finance Ministers call for coordinated COVID-19 response to mitigate adverse impact on economies and society. United Nations Economic Commission for Africa. Retrieved from https://www.uneca.org/stories/african-finance-ministers-call-coordinated-covid-19-response-mitigate-adverse-impact

[3] Laskaridis, C. (2020, April 4). Debt Moratoria in the Global South in the Age of Coronavirus. Developing Economics. Retrieved from https://developingeconomics.org/2020/04/04/debt-moratoria-in-the-global-south-in-the-age-of-coronavirus/

[4] Malpass, D. (2020). World Bank. Retrieved from https://www.worldbank.org/en/news/speech/2020/03/23/remarks-by-world-bank-group-president-david-malpass-on-g20-finance-ministers-conference-call-on-covid-19?cid=ECR_TT_worldbank_EN_EXT

[5] Strauss, D., & Wheatley, J. (2020, March 25). Global lenders seek debt relief for poorest countries. Financial Times. Retrieved from https://www.ft.com/content/6eca167c-6ec0-11ea-9bca-bf503995cd6f

[6] IMF. (2020, March 25). Factsheet – Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative. Retrieved April 6, 2020, from
https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/16/11/Debt-Relief-Under-the-Heavily-Indebted-Poor-Countries-Initiative

[7] Mutume, G. (2005). Industrial countries write off Africa’s debt. Africa Renewal. Retrieved from https://www.un.org/africarenewal/magazine/october-2005/industrial-countries-write-africas-debt

[8] Jubilee Debt Campaign. (2020, March 18). Coronavirus: Cancel the debts of countries in the global south. Retrieved April 6, 2020, from https://jubileedebt.org.uk/actions/stop-coronavirus-debt-disaster

[9] Tran, H. (2020, March 10). Coronavirus and debt: a toxic mix. Retrieved April 6, 2020, from https://www.ft.com/content/0cc94fb6-8b35-427d-9f98-dc727303ebbf

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