The United Nations' development program is calling on rich countries and financial institutions in them to do more to help alleviate a growing debt crisis faced by the world’s poorest countries, including by writing off debts — not just rescheduling them.
A report from UNDP released Tuesday comes amid meetings by the World Bank, International Monetary Fund and Group of 20 countries in Washington that are expected to consider in part a growing debt crisis that is weighing on the developing world, as interest rates have climbed this year — raising the cost of borrowing.
UNDP says the situation could jeopardize the fight against the impact of climate change, development programs, and efforts to alleviate poverty — which has been among the key drivers of migration from the developing world to richer nations.
Achim Steiner, the UNDP’s administrator, cited World Bank and IMF figures indicating that some 60 percent of low-income countries are now at high risk of falling into “debt distress” — or are already in it — twice the number in 2015.
“These are sobering statistics,” Steiner said. “I think it doesn’t take much imagination to understand that this debt crisis threatens to spill over to an entrenched, sustainable development crisis,” that could affect the ability of developing countries to cope with the COVID-19 pandemic or higher energy and food prices, for example, he said.
“We shouldn’t wait for either interest rates to drop or for the global economy to tip into recession to act on debt,” Steiner said.
The U.N. program examined 54 countries — nearly half in Africa — that make up only about 3% of the world economy and 18 percent of the global population. Those countries contribute the least to climate change but are among those that suffer most from its impact.
UNDP senior economist George Molina said the “holdouts in debt restruturing” now were “mostly private creditors” — and debt conditions have soured so much that many may want to try to cut their losses. Those creditors will still also want “financial assurances” that they will be repaid, even after accepting smaller losses — and that’s where “major economies” could step in to help.
Ultimately, the report “Avoiding ‘Too Little, Too Late’ on International Debt Relief” hopes that creditors and governments will shift their focus from traditional debt rescheduling to “comprehensive restructuring involving write-offs allowing countries a faster return to growth, financial markets, and development progress.”