Egyptian President and African Union Chair Abdel Fattah al-Sisi delivers a speech at the African Union summit in Niger.
Issouf Sanogo | AFP | Getty Images
Interest rate hikes by the US Federal Reserve and other central banks risk deepening a global debt crisis, especially for developing countries, according to a new report by UK nonprofit The Jubilee Debt Campaign.
The Federal Open Market Committee is meeting this week to decide the way forward for its monetary policy tightening as it seeks to contain soaring inflation. Some analysts expect the central bank to hike rates four times from their pandemic-era lows in 2022.
In a report released on Sunday, the Jubilee Debt Campaign pointed out that debt payments from developing countries increased by 120% between 2010 and 2021, and are currently at their highest level since 2001. The average share of government revenue spent payment of external debt has increased from 6.8% in 2010 to 14.3% in 2021, with payments soaring in 2020.
Sharp increases in debt payments are hampering countries’ economic recovery from the pandemic, the report said, and rising US and global interest rates in 2022 could make the problem worse for many low-income countries.
Kristalina Georgieva, managing director of the International Monetary Fund, said last week that Fed rate hikes could “throw cold water” on already weak recoveries in some countries. Higher US interest rates, and therefore a rise in the greenback, could make it more costly for countries to meet their dollar obligations.
“The debt crisis continues to engulf low-income countries, with no end in sight unless there is urgent action for debt relief,” said Heidi Chow, executive director of the Jubilee Debt Campaign.
“The debt crisis has already robbed countries of the resources needed to deal with the climate emergency and continued Covid disruptions, while rising interest rates threaten to plunge countries into even more debt.”
Chow called on G-20 leaders to stop “putting their heads in the sand” and argued that the global economy urgently needs a “comprehensive debt cancellation program that forces lenders to participate in debt relief”.
The organization’s debt data portal said 54 countries around the world are currently facing debt crises, as paying down debt hampers governments’ ability to safeguard economic and social rights. citizens.
Fourteen other countries are threatened by both a public and private debt crisis, while 22 are threatened by a private sector debt crisis only and 21 by a public sector crisis.
Of all external debt payments due in 2022 by low- and lower-middle-income governments, 47% are to private lenders, 27% to multilateral institutions, 12% to China, and 14% to other governments , according to figures from the JDC.
In a tweet last week, World Bank President David Malpass called for urgent debt relief, increased debt transparency and a rebalancing of the powers of creditors and debtors. The G-20 created the Common Framework in 2020, intended to help countries facing insolvency and protracted liquidity problems.
However, none of the countries admitted to the framework have yet had their debt cancelled. The African Forum and Network on Debt and Development (AFRODAD) has long warned that many African countries face a debt precipice, and Zambia in November 2020 became the continent’s first default in the era of debt. pandemic.
“Covid-19 has accelerated an already deteriorating situation and will reverse the socio-economic gains of the past decade,” said Jason Braganza, Executive Director of AFRODAD.
“We have always said that the current debt relief measures are not enough and have called for a truly inclusive debt relief program with all creditors; and a comprehensive debt cancellation program.