As the coronavirus began to spread across the globe in the first half of 2020, international aid organizations began sounding the alarm about the outsized impact the virus would likely have on poor countries — especially those that are already forced to dedicate significant amounts of their annual budgets to paying off sovereign debts.
Now, nearly a year into the pandemic, many of those warnings are coming true, and activists say efforts to relieve the debt burden on developing countries have been ineffectual at best, and a handout to private sector lenders at worst.
The Institute of International Finance (IIF) last month warned of a “debt tsunami” threatening the world economy, as governments and private businesses took on more than $15 trillion in additional obligations over the first 10 months of the year. In developing countries, the debt burden has increased by 26% in that time, the IIF found, while tax revenues declined sharply.
World Bank and International Monetary Fund data show that at least 35 countries are currently in or at high risk of “debt distress.” They include Ghana, Kenya, Afghanistan, Tajikistan, Haiti, Dominica, Tonga and Tuvalu. The problem is particularly acute in sub-Saharan Africa, where IMF data indicate that average debt has ballooned to 65.6% of gross domestic product, and debt service obligations average 32.3% of annual revenue.
The result has been a complex set of problems for the leaders of developing countries. With revenues lower, payments on existing debts take up an even larger share of annual spending, creating difficult choices when substantial public health investments are needed. And many countries have been unwilling to avail themselves of programs that would allow them to restructure their debts, out of fear that it would impact the way international lenders view their creditworthiness, making it harder to borrow in the future.