Some questions about Debt and Covid-19

Since the beginning of the pandemic, debt levels have been rising across developing countries, as a result of the economic downturn. More than half of least developed and other low-income countries are at high risk of, or in debt distress. Debt service will exceed 25% of tax revenue in over half of developing countries. The "G20 Debt Service Suspension Initiative" and the "G20 Common Framework for Debt Treatments beyond the DSSI" provide an insufficient answer to address this issue. What are the main shortfalls of these initiatives and how should we reform the international debt architecture? How severe do you consider the rising debt distress situation in sub-Saharan Africa?

The DSSI and the CF are not enough to address the debt crisis. A successful response requires allocating resources to public services with a long-term vision, not blurred by the fear of debt. The DSSI has failed on this account. The initiative provides a short-term solution to a deep debt problem. It merely allowed the suspension of debt repayments equivalent to 1.6% of debt service of developing countries. The DSSI does very little for countries in Sub-Saharan Africa. Countries from this region, which account for 28 out of 43 countries that have applied to the DSSI, have experienced a sharp increase of risk of debt distress and face a lost decade. 

In this context, an effective response requires to: include the binding participation of multilateral and private creditors; be extended in time beyond 2021; include middle-income countries in debt distress; and incorporate the cancellation of suspended payments. 

Given the magnitude of the crisis, the DSSI and the CF diverted attention from a substantial reform of the debt architecture. The creation of a fair and transparent sovereign debt workout mechanism (DWM) under UN auspices is paramount to address debt vulnerabilities.

Showing 1 reaction

Please check your e-mail for a link to activate your account.