Source: Christian help
A major new study on rising Southern debt repayments to private lenders shows a shocking lack of transparency as well as worrying implications for human rights. This prompted calls for the UK government to compel private creditors to support debt relief.
The report comes as the World Bank and IMF held their annual meetings in Washington last week to discuss global economic turbulence and the hunger crisis in Africa.
The main finding from a consortium of charities, led by the international development agency Christian Aid, is that private sovereign debt is a growing risk for poor and middle-income countries due to rising interest rates. interest and a strong US dollar.
Kenya, Nigeria, Guatemala and El Salvador are just four examples where increasingly expensive commercial loans are being used for development projects and filling holes in tax revenue.
Christian Aid warns that issuing bonds and borrowing from non-governmental or multilateral lenders backfires. The charity says the effects of the global pandemic, a worsening climate crisis and the war in Ukraine are causing a global economic downturn leading to a growing need for public spending, further compounding the existing debt problem.
The analysis points out that with interest rates rising around the world to drive down inflation, repaying private US dollar loans becomes even more expensive with each increase in the value of the US dollar relative to others. currencies.
Christian Aid calls on the UK government to:
– Use its influence to support debt relief and compel private creditors to participate in existing IMF mechanisms.
– Ensure that details of private commercial loan agreements are made public to ensure scrutiny and discourage risky lending and borrowing.
– Ensure that debts are valued according to their contribution to sustainable and equitable development – and not according to a country’s ability to pay.
Karimi Kinoti, Acting Africa Policy Director for Christian Aid, said: “The impact of the climate crisis, conflict and Covid-19 has left people who were already struggling without a way to feed their families. This added financial threat has all the explosive ingredients to cause a devastating debt crisis.
“On top of that, the diversion of limited public funds to repay costly private debt acts as a stranglehold on too many national economies in the Global South. The money should go where it is most needed, such as agriculture adaptation to climate change and better health. services.
“Take Nigeria’s health budget. It has steadily declined as a proportion of national income, from 5% in 2003 to 3% in 2019. Over the same period, the annual costs of private debt have skyrocketed.
“The UK government has a moral obligation to act. Ministers should use their influence to compel private creditors to support debt relief and ensure that debt is assessed on the basis of the contribution to sustainable development. not on a country’s ability to pay.”
The research will be published later this year and was conducted by Tax Justice Network-Africa, the Civil Society Legislative Advocacy Center and the Instituto Centroamericano de Estudios Fiscales, in collaboration with Christian Aid, examining the implications of private sovereign debt for the people. and the economies of Kenya, Nigeria, Guatemala and El Salvador.
The IMF’s latest World Economic Outlook indicates that diverging policy trajectories in the largest economies could exacerbate US dollar appreciation and that tighter global financing could trigger emerging market debt overhangs.
World Economic Outlook Report – www.imf.org/en/Publications/WEO/Issues/2022/10/11/world-economic-outlook-october-2022