Passing The Buck: Who’s delaying debt relief to Global South

Ashutosh Pandey

UNITED NATIONS: Hit by multiple crises such as the COVID-19 pandemic, the war in Ukraine and climate change, developing countries, many of them in Africa, piled on colossal levels of debt to keep their economies afloat. Today, 3.3 billion people live in countries that spend more on interest payments than on education or health, according to the United Nations.

Many developing countries find themselves in a vulnerable position in a shock-prone world, with their financial coffers running low amid soaring food and energy costs; rising interest rates in the United States and elsewhere pushing up borrowing costs for governments; a surge in the value of the US dollar driving up interests on dollar-denominated debt; and China, their go-to creditor in the past decade, witnessing a major slowdown.

In the past few years, about 10 countries, including Zambia and Sri Lanka, have already defaulted, while more than 50 others such as Pakistan and Egypt are facing repayment difficulties.

“For a large number of developing countries, the debt crisis means money not spent on game-changing, life-changing investments in the well-being and progress of people, who are the real ‘wealth of nations,’” Achim Steiner, administrator of the UN Development Programme, told DW.

Any relief from creditors has been painstakingly slow to arrive as the International Monetary Fund (IMF), World Bank and the Paris Club of creditors contend with the rise of new official creditors such as China, India and the Gulf countries.

The catastrophic debt crisis facing developing countries is among the key themes at the annual meetings of the IMF and World Bank in Marrakech as leaders find ways to accelerate debt relief.

“It is a very frustrating moment because, from a technical and policy perspective, the route is very clear on how to give these countries that relief. But there’s really a kind of a bigger geopolitical problem at play that makes that relief very difficult,” Clemence Landers, senior policy fellow at the Center for Global Development, told DW.

The debt crisis could also have major ramifications for wealthy countries as it would force even more people from debt-stressed countries to seek refuge abroad. The impact could also be felt in terms of lost exports to struggling countries.

Debt relief efforts have been traditionally led by the rich countries belonging to the Paris Club. However, the rise of China as the single-largest bilateral creditor to poor countries has complicated those efforts.

China has issued loans worth more than a trillion dollars for major infrastructure projects as part of its Belt and Road Initiative, at high rates and often on opaque terms.

Many of those loans have become distressed. Back in 2010, only 5% of China’s overseas lending portfolio supported borrowers in financial trouble. Today, that figure stands at 60%, Brad Parks, from AidData, a research lab at William & Mary university in Virginia, told DW.

Partially because of domestic loan troubles, Beijing has been unwilling to take a hit on its loans, and initially shunned multilateral debt relief efforts. Instead, it focused on dealing with the problem bilaterally by providing emergency rescue loans or temporarily

suspending repayments, assuming that its borrowers were only facing short-term liquidity challenges.“Beijing is now learning that some of its Belt and Road borrowers are insolvent and short-term liquidity relief alone is not going to solve the problem,” Parks said.