“There is broad recognition in the international community that fiscal responses to the multiple crises have been far from adequate and largely, in the form of loans. International financial institutions warn of debt distress among developing countries and yet act in a manner that is making the situation worse.” 

Lidy Nacpil, APMDD Coordinator, spoke on this issue at the virtual Civil Society Policy Forum of the IMF and World Bank in a session entitled “National and Global Debt Mechanisms, Towards Long Term Sustainability in a Post COVID-19 Recovery” held last April 14. She was joined by other co-organizers LATINDADD, EURODAD, AFRODAD and Jubilee USA who also gave inputs during the event.

Moderators Iolanda Fresnillo of Eurodad and Eric LeCompte of Jubilee USA laid out the context of unprecedented debt levels in the wake of the economic shock of COVID-19 . Threats to achieving shared climate and development goals have grown more acute. These include the failure of debt relief initiatives to help countries achieve sustainable debt levels at the same time that climate finance commitments continue to fall short. Opportunities abound to secure green and inclusive rebuilding in every region and nation, but the challenges are significant, and time is running out.

Nacpil pressed lenders to be more consistent in words and deeds, citing their avowed policy shift away from fossil fuels, and yet failing to provide more grants for renewable energy. She pointed out that , even with this policy shift and so-called “retirement mechanisms” underway, there is no clarity on whether the loans incurred by Southern governments for these fossil fuel projects will be cancelled. Unless cancelled, they remain as debt burdens for the people.     

Patricia Miranda, Global Advocacy Director of the Latin American Network for Economic and Social Justice (LATINDADD) raised concern over the exclusion of Middle-Income Countries (MICs) in debt relief, the failure to compel the participation of private creditors, the persistence of austerity measures as loan conditionalities and the steep rise in domestic debt.

She noted that lenders left out MICs in the Debt Service Suspension Initiative (DSSI) despite rapid debt accumulation and a disproportionate share of worsening socio-economic and human conditions among the global regions. Championed by the G7, G20 and IFIs in response to the pandemic, the deferral of debt payments expired in December 2021 after only a year and a half of implementation and involved only a handful of developing countries.  

Miranda also pointed out that many MICs have overwhelmingly sourced public debts from private creditors and domestic sources. Private lenders are not compelled to join the debt relief efforts. Domestic debt levels, which she noted have surpassed external debts, is not included in the IFIs’ debt sustainability framework even as it carries its own set of fiscal risks.

On the Paris Club’s Common Framework for Debt Treatments Beyond DSSI, she critiqued both design and implementation. “If it’s a ‘common framework’, then rules must apply to all [including private lenders],” said Miranda. She added that this is better assured through a sovereign debt workout mechanism under the auspices of the United Nations where the costs of debt-related instability are both shared by borrowers and lenders.

Addressing the need not only for global mechanisms, Iolanda enjoined the panelists to share on national initiatives that could serve to counter measures adopted in international financial centers which affect developing countries, but are without benefit of scrutiny by citizens.

Jason Braganza, Executive Director of the African Forum and Network on Debt and Development (AFRODAD), shared his organization’s experiences on domestic financial architecture reforms, including promotion of local arbitration mechanisms and provisions for automatic debt cancellation in extreme circumstances. He said that these also promote the empowerment of the judiciary and the legislature.

The above civil society panelists’ responses largely addressed the inputs of Diego Rivetti, Senior Debt Specialist at the World Bank and Martin Cerisola, Assistant Director at the IMF Strategy, Policy and Review Department. Both speakers reiterated, among others, the IFIs’ support for the Common Framework. They recognized the slow progress in getting more borrowing countries on board but noted that this may be due to factors outside of the CF. They did not counter the risk of rising domestic debt as a significant factor that should be included in the debt sustainability framework but explained that country authorities have been able to create domestic debt markets and are reluctant to change jurisdiction. 

To the criticism raised on austerity measures, their response was a reiteration of the need to put policies in place for reducing public expenditures and increasing taxes as part of reforms towards better fiscal management and planning.