Last April 12, APMDD joined debt justice groups and partners in holding a session dubbed “Achieving debt crisis resolution that delivers today and in the future,” at the Civil Society Policy Forum of the IMF and World Bank. The event was lead-organized by Latindadd and co-sponsored by APMDD, AFRODAD, Jubilee USA, Eurodad, SLUG, Arab Watch Coalition, SEATINI Uganda, Society for International Development, ActionAid and Christian Aid.
The panel discussion revolved around the worsening economic situation across all developing regions, marked by increasing debt burdens in low- as well as middle-income countries, and the failure of G20 and Paris Club debt relief measures to rise to the challenge. Supported by the IMF and the World Bank, these moves provide no genuine solutions and only point to ever-increasing debt dependence and accumulation.
In the Latin America and Caribbean region, indicators spell out declining economic growth, uncertainty, inflation and debt risks. However, as Latindadd notes, “the responses suggested by multilateral organizations and the G20 focus on a return to fiscal rules, fiscal adjustment measures, increased borrowing through the extension of IMF and Multilateral Development Bank loans, as well as increased private financing. The IMF and the World Bank (WB) point out that global uncertainty is part of the collateral effects of the war and that, compared to what they expected last fall, the economy seems to have been more resilient, and the worst macroeconomic risks would not have materialised.”
The situation is not substantively different in other Global South regions where solutions being applied do not reflect changes in the lending and borrowing landscape, such as the shift from concessional to non-concessional types of loans sourced from capital markets. This has precisely paved the way for countries like Zambia and Ghana to sink into deeper debt catastrophes.
In Asia, external borrowings of low and middle-income countries in East Asia, the Pacific and South Asia regions broke records at $1.23 trillion by end-2020 or almost their entire export earnings for the year. In the same period, they paid $115 billion in debt service to international financial institutions and private lenders, or $98 billion more than in 2019. (See sidebar below.)
Patricia Miranda (Latindadd) moderated the interventions of panelists which included Jason Braganza (Afrodad), Maria Colodenco (former head of International Affairs of the Argentine Economic Ministry), Mark Flannagan (IMF) and Mae Buenaventura (APMDD).
Asia has countries with a heavy burden of debt and some cases with a debt restructuring process that is not delivering for people. How are we faring under the current debt system? What are the main calls from Asia debt movements?
We passed the third year since COVID19 was declared a pandemic, and while in the world stage, it seems like we’re out of it, millions of people in the South remain gravely vulnerable, not only to ill-health but also to the intensifying climate crisis, lack of basic public services, food and fuel shortages that are growing more acute, to name a few. They include women whose largely unremunerated care work is cushioning societies from even more severe impacts, who are feared by UN Women to number 475 million in extreme poverty by 2030.
External borrowings of low and middle-income countries in East Asia, the Pacific and South Asia regions broke records at $1.23 trillion by end-2020 or almost their entire export earnings for the year. In the same period, they paid $115 billion in debt service to international financial institutions and private lenders, or $98 billion more than in 2019. Prior to the pandemic, the average government debt-to-GDP ratio in developing countries in the Asian and Pacific region was already at an 11-year high of 40.6 per cent in 2019. This jumped to 49.5 per cent in 2021 with two thirds of Asia-Pacific economies reaching the highest level since 2008. Rising interest rates in 2022 have added further pressure to the debt service payments, which is increasing in many countries in the region.
Conditions are dire in South Asia, where all countries recently downgraded their growth forecasts. In recent weeks, flour shortages have plagued Pakistanis – even taking lives while queueing for this staple. Some 10 million are still without access to safe drinking water six months after the monsoon floods that global warming and glacial melt made catastrophically worse. But more than $22 billion will be collected from them as debt repayments within 2023. IMF negotiations for a delayed $1.1 billion loan tranche, part of $6.5-billion bailout agreed in 2019, drag on while foreign exchange reserves dwindle. Pakistanis are also shelling out millions of dollars as IMF collects surcharges for high debt levels and failure to pay outstanding obligations on time. Still, the Pakistan government prioritizes meeting debt repayments this year, jumping from pillar to post to borrow more.
Sri Lanka, whose GDP was forecasted by IMF to contract by 4.3 percent remains at the mercy of austerity conditions attached to debt restructuring. Calm seems to have settled over the country but beneath it, are millions of diminished lives, inadequate food, much reduced incomes. Inflation is still staggering at 59 percent. Nearly 30 percent of the population is experiencing food insecurity, according to the UN. The $3-billion bailout package from the IMF is but a window to more debt of about $4 billion from the World Bank, Asian Development Bank and other lenders.
In Southeast Asia, Lao PDR was downgraded by WB in its an annual economic growth rate to 2.5%, the second lowest since 1988 and below earlier projections. Rising public and publicly guaranteed debt are projected to exceed 100 per cent of GDP by the end of the year. This is accompanied by a sharp depreciation of the national currency and rising inflation which has risen swiftly from below 2 per cent in 2021 to 37 per cent in October 2022. (https://www.eastasiaforum.org/2023/01/28/laos-in-limbo-heading-into-2023/) According to the WB, debt service obligations will average $1.3 billion per year for 2023-26, or close to the total stock of official foreign reserves recorded in June 2022. (https://www.worldbank.org/en/country/lao/publication/lao-economic-monitor-oct-2022-tackling-macroeconomic-vulnerabilities-key-findings)
On the G20 and Paris Club Debt Relief Schemes
Pakistan, Nepal and Lao PDR availed of the temporary and limited debt relief afforded by the DSSI but obviously, this inadequate measure has proven a failure for the 43 countries that accessed it, whose debt problems systemically began many years before COVID-19. After the DSSI ended in 2021, they had to make their “regular” debt payments as well as also reimburse the debt service that was suspended under DSSI in the first place. The amounts suspended, as they fall due in coming years, will be more significant. As per the G-20 recommended rescheduling terms to the USD 12.9bn of debt service suspended over April 2020 – December 2021: the USD 3.2bn suspended over April 2020 – December 2020 are assumed to be reimbursed over 3 years after 1 year of grace period, and the USD 9.7bn suspended over January 2021 – December 2021 are assumed to be reimbursed over 5 years after 1 year of grace period.
The Common Framework is also proving inadequate, as their proponents have admitted, but they continue to be insistent on fitting the problem to their solution rather than the other way around. debt treatments under the Common Framework require an active IMF programme, which carries with it unpopular austerity measures that governments may be averse to carry out for political reasons. Meantime, IFIs and other lenders have been finger-pointing, particular at China’s lending as the obstacle.
As Pakistan, Nepal and Sri Lanka have also shown, the exclusion of middle-income countries in debt reduction efforts is also being proven wrong. Based on narrow debt-sustainability MICs have exhibited relatively more significant declines in their financial conditions since the North started monetary tightening. Coming from decades of economic difficulties and debt accumulation, MICs’ deterioration came faster and with greater impact from the cascading and combined effects of higher interest rates, inflation, skyrocketing commodity prices, climate catastrophes and already elevated debt levels from previous years. But this is the result of debt sustainability analysis that puts a premium on meeting creditor claims and is divorced from context and actual development needs, human rights, gender equality and climate commitments.
Among so-called reform initiatives taking center stage here in the Spring meetings, is the World Bank’s Evolution Roadmap and the Global Sovereign Debt Roundtable. Again, the metaphor of the Emperor’s New Clothes comes to mind – but more alarmingly …Because more debts and private sector investments are being pushed as supposedly bolder responses to the defining crises of our times, the crises of development and of climate change. Because they did not benefit from public scrutiny by other important stakeholders such as civil society, media and borrowing countries as would have been possible in a multilateral system such as the UN, with more equitable and democratic participation spaces for participation and expressing divergent views.
What do we want? – A reiteration of civil society calls and demands
In the context of multiple crises, the increasingly dire situation of burdensome debt in Asia and other global south regions underscores this anew – that Business-as-Usual, piecemeal, short-term and limited interventions applied to systemic and structural problems of long-standing are, by any other name, false solutions.
As part of global debt justice movements, we reiterate our demands for —
1. Unconditional, extensive and massive debt cancellation for all countries in need, including to both low and middle-income countries, assessed with respect to their development financing requirements, and provided by all creditors (bilateral, multilateral, and private). Illegitimate debts must be immediately cancelled.
Many debt-burdened countries of the South are also among the most vulnerable to climate emergencies. From a Southern perspective, they have paid their debt many times over from net transfers of natural and human resources to the Global North, which is well established to have contributed heaviest to the climate crisis and are treaty-bound to deliver climate finance to the South. The demand for debt cancellation and grant-based climate finance, not more loans, is a demand for justice and reparations.
2. A debt architecture reform agenda for real change and real solutions. We stress once again our call on governments to establish a fair, transparent, binding and multilateral framework for debt crisis resolution (under the auspices of the UN and not in lender-dominated arenas) that address –
a. Debt cancellation – granted to all countries in need and by all creditors (bilateral, multilateral and private)
b. Human rights – use human rights and development impact assessments in debt sustainability analysis
“It is time for a bold shift in thinking about public debt sustainability. We propose an augmented approach that assesses public debt viability that takes into account a country’s SDG investment needs, government structural development policies aiming to boost economic competitiveness, and national SDG financing strategies.” (Armida Salsiah Alisjahbana, United Nations Under-Secretary-General and Executive Secretary of ESCAP)
c. Responsible borrowing and lending – agree on common and binding principles
d. Credit rating agencies – assess systemic risks posed by financial sector instruments and actors including regulation of credit rating agencies
In addition, we underscore our calls for —
- The immediate delivery of new, additional and non-debt creating climate finance for adaptation, mitigation and loss and damage, far beyond the unmet $100 billion/year pledge, that adequately meets the needs of the Global South;
- Thorough-going national and global review and changes in lending, borrowing and payment policies and practices aimed at preventing the re-accumulation of unsustainable and illegitimate debt, strengthening democratic institutions and processes, upholding human rights and peoples’ self- determination, and bringing the IMF, World Bank and other global lenders to justice;
- Genuine participatory, inclusive debt transparency and accountability mechanisms and processes, including national debt audits, that will critically examine the nature, purpose, terms and conditions, actual use of loans, and the impacts of loan-supported policies and programs;
- The establishment of a fair, transparent, binding and multilateral framework for debt crisis resolution (under the auspices of the UN and not in lender-dominated arenas) that addresses unsustainable and illegitimate debt and recognizes the priority of human rights obligations for all involved; and,
- Reparations for the damages caused to countries, peoples and nature, due to the contracting, use and payment of unsustainable and illegitimate debts and the conditions imposed to guarantee their collection.
Watch the full panel discussion here: https://www.youtube.com/watch?v=W6ADWp3xPDg