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UNCTAD calls for $1 trillion in debt relief for developing countries amid COVID-19 pandemic
THE United Nations Conference on Trade and Development (UNCTAD) says Coronavirus pandemic hits developing countries at a time when they have already been struggling with unsustainable debt burdens for many years, as well as with rising health needs.
In a report, UNCTAD called for $1 trillion in debt relief for developing countries, noting that they now face a wall of debt service repayments throughout the 2020s.
In 2020 and 2021 alone, repayments on their public external debt are estimated at nearly $3.4 trillion—between $2 trillion and $2.3 trillion in high-income developing countries and between $666 billion and $1.06 trillion in middle- and low-income countries, the UN body said in the report titled “COVID-19 is a matter of life and debt, global deal needed.”
On 30 March, UNCTAD said it called for a $2.5 trillion coronavirus crisis package for developing countries.
“Even prior to the COVID-19 crisis, many of these countries faced high and rising shares of their government revenues going to debt repayments, squeezing health and social expenditures,” it said.
“The international community should urgently take more steps to relieve the mounting financial pressure that debt payments are exerting on developing countries as they get to grips with the economic shock of COVID-19,” said Mukhisa Kituyi, UNCTAD Secretary-General .
The report showed that the financial turmoil from the crisis has triggered record portfolio capital outflows from emerging economies and sharp currency devaluations in developing countries, making servicing their debts more onerous.
“Recent calls for international solidarity point in the right direction,” said Richard Kozul-Wright, Director of UNCTAD’s globalisation division that produced the report, “but have so far delivered little tangible support for developing countries as they tackle the immediate impacts of the pandemic and its economic repercussions.”
On April 13, the Internation Monetary Fund (IMF) cancelled debt repayments due to it by the 25 poorest developing economies for the next six months. This debt cancellation is estimated at around $215 million.
On 15 April, leaders of the group of 20 leading economies (G20) announced the suspension of debt service payments for 73 of the poorest countries from May to the end of this year.
The UNCTAD in the report suggested that a trillion-dollar write-off would be closer to the figure needed to prevent economic disaster across the developing world.
It also suggested automatic temporary standstills which would provide macroeconomic “breathing space” for all crisis-stricken developing countries requesting forbearance to free up resources, normally dedicated to servicing external sovereign debt.
The standstills, if long and comprehensive enough, would facilitate an effective response to the COVID-19 shock through increased health and social expenditure in the immediate future and allow for post-crisis economic recovery along sustainable growth, fiscal and trade balance trajectories.
While suggesting debt relief and restructuring programmes, it said the programmes would ensure the “breathing space” gained under the first step is used to reassess longer-term developing country debt sustainability, on a case-by-case basis.
The UNCTAD said more systematic, transparent and coordinated measures towards writing off developing country debt across the board are urgently needed, the report says. It suggested that a trillion dollar write-off would be closer to the figure needed to prevent economic disaster across the developing world.
To take the first two steps forward, the UNCTAD report proposed the establishment of an International Developing Country Debt Authority (IDCDA) to oversee their implementation and lay the institutional and regulatory foundations for a more permanent international framework to guide sovereign debt restructurings in future.
This could follow the path of setting up an autonomous international organisation by way of an international treaty between concerned states. Essential to any such international agreement would be the swift establishment of an advisory body of experts with entire independence of any creditor or debtor interests.