Blighted by the effects of global heating, beset by food insecurity and rising poverty, and hobbled by dollar-denominated debt that leaves no fiscal room for manoeuvre, some of the world’s poorest nations are enduring a perfect storm. In the wake of Covid and then the war in Ukraine, inflation and high interest rates have tipped many over the edge: between 2020 and 2023 there were 18 sovereign defaults in 10 developing countries – more than in the previous two decades. Others are either in debt distress or close to it.
As the World Bank and the International Monetary Fund hold their annual spring meetings in Washington this week, this dismal state of affairs should be at the top of delegates’ agendas. Prior to the pandemic, the 2020s had been earmarked as a transformative decade – one in which developing nations would make vital progress towards climate targets and eliminating extreme poverty and hunger. Instead, due to events beyond those countries’ control, there has been what a World Bank report this week described as a “great reversal”. In countries classified as eligible for grants and loans from the bank’s International Development Association (IDA), a quarter of the population is now surviving on less than $2.15 a day – the global definition of poverty.
To get back on track, an estimated $2.4tn worth of annual investment is required. But without meaningful debt relief, countries from sub-Saharan Africa to the Caribbean will continue to go backwards, haemorrhaging the cash they need to fund social services and combat the climate emergency. A recent United Nations Development Programme (UNDP) study found that low-income countries are spending far more on debt repayments to creditors than on social assistance or healthcare. Meanwhile, the fragility of the global economic recovery and higher interest rates in advanced economies have led foreign lenders to back away from extending new loans.
Faced with a crisis that directly impacts on key international priorities, a business-as-usual approach is both unethical and unsustainable. Belatedly, rich countries and international organisations need to step up. Ahead of this week’s meeting in Washington, the World Bank’s president, Ajay Banga, has called for the largest-ever round of funding for the IDA, which needs to be empowered to replace the fiscal firepower that private lenders have withdrawn. The pace of the restructuring of existing debt also needs to be far quicker, and its terms more generous. The UNDP, for example, has called for a “debt-poverty pause’, which would allow governments to divert suspended debt repayments towards neglected social programmes and critical infrastructure.
Such a step would be welcome, but extensive debt relief is also required. A world where a country such as Zambia finds itself locked in endless negotiations over a $13bn debt restructuring, as a catastrophic drought devastates its economy, is unfit for the challenges of the times. In an open letter before Cop28 last November, 550 economists called for ambitious debt cancellation to allow global south governments to “respond to their immediate and long-term development needs, including the climate crisis”. At a time when global solidarity is pivotal to averting environmental disaster, that would be both a radical and a realistic approach. The future of entire economies, and the planet, should not be placed in jeopardy at the insistence of intransigent bondholders.
