A few hours before the end of 2023, the World Bank (WB) showed the scandalous figures paid by developing countries in debt service payments, an issue that has undoubtedly affected the attention to critical needs.

By Teyuné Díaz Díaz

Health, education, and the environment were left behind for these nations, as they were forced to meet a record payment of 443.5 billion dollars of their debts in 2022.

This is amid sustained interest rate hikes, with the poorest countries most at risk of default crises, especially in the complex international context.

“Every quarter with high-interest rates, more developing countries are affected and face a difficult choice between repaying public debt or investing in public health, education and infrastructure,” explains the WB.

According to the WB’s International Debt Report, debt service payments – including principal and interest – grew by five percent in 2022 compared to 2021.

EARLY WARNINGS OF CRISES

During 2023 different international bodies warned of the seriousness of the issue.

For example, in May, the Economic Commission for Latin America and the Caribbean (ECLAC) raised concerns about the sustainability of public debt in emerging markets and developing economies.

The study warns of a likely slowdown in the economic outlook for developing regions, given weakening global economic activity, reduced international trade, high inflation, and volatile financial and commodity markets.

Before the COVID-19 pandemic, according to ECLAC, public debt levels in Latin America and the Caribbean rose, and after the health crisis this trend worsened.

The increase in debt servicing, continues, especially in foreign currency, forces countries to face painful choices that involve sacrificing investment and social spending.

An unsustainable environment to meet these financial commitments, which in turn leads to a crisis with profound consequences for development and lasting effects on growth, investment, poverty and inequality, ECLAC stressed.

Later in July, the United Nations Development Programme (UNDP) urged the G20, the world’s 20 most developed economies, to pause debt payments to low- and middle-income countries.

The call came just days before the G20 finance ministers meet to discuss the fight against poverty, the reform of key multilateral institutions, and the international debt architecture.

In its report, the UNDP noted that, from 2020 to 2023, some 165 million more people fell into poverty and now number some 1.65 billion individuals, more than 20 percent of the world’s population.

According to the data, 25 low-income countries spent more than 20 percent of their income on debt service in 2022, the highest number of nations since 2000, a figure that could continue to rise.

Since then, the administrator of this international organization, Achim Steiner, has stated that debt servicing makes it increasingly difficult for countries to support their populations with investments in health, education, and social protection, as the WB and ECLAC also report.

Steiner pointed out that in such a situation a government can no longer pay its teachers; it cannot hire doctors and nurses in hospitals, nor can it provide medicines for rural health centers.

The increase in poverty is alarming, the debt burden is unsustainable, especially for low-income countries, he said.

Also in July, ahead of the G20 meeting, the Global Crisis Response Group noted that global public debt had reached a peak of 92 trillion (one trillion) dollars and 30 percent of these obligations are borne by poor countries.

During the presentation of the text, the Secretary-General of the United Nations (UN), António Guterres, stressed that “half of humanity lives in countries that are forced to spend more on servicing their debt than on health and education, which means nothing less than a disaster for development”.

In agreement with ECLAC and UNDP, the Group warned that the payment of obligations limits the development of these States, as governments reduce budgets for social spending and, as a result, three and a half billion people lack access to programs aimed at the Sustainable Development Goals or the energy transition.

Despite the warnings, there was no consensus on debt restructuring for low- and middle-income countries during the G20 ministers’ meeting.

The current outlook lacks prospects for improvement, acknowledged the G-20, representing nations with 85 percent of the world’s Gross Domestic Product, more than 75 percent of international trade, and some two-thirds of the world’s population.

At that meeting, the group even admitted that the gap between rich and poor will continue to widen if policies that include mechanisms for the most vulnerable are not swiftly implemented. However, they did not agree to stop debt payments.

UNHEEDED PROPOSALS

Tackling high debt levels and the risks of debt overhang are urgent issues, yet neither the warnings of international organizations nor their proposals were listened to.

For example, ECLAC and the UN agreed on the need to adopt debt standstills, longer loan maturities and lower interest rates, as well as a massive expansion of affordable long-term and other contingency financing. The World Bank argues that debtor governments, creditors – official and private – and multilateral financial institutions should be more transparent, improve debt sustainability tools and create more agile restructuring mechanisms.

In any case, neither warnings nor possible solutions achieved a consensus between debtors and creditors, and with it, the unstoppable increase in inequality and poverty.

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Teyuné Díaz Díaz, Editor-in-chief of Prensa Latina’s Economy section.