Growing global crises have left 54 countries – home to more than half of the world’s poor – in dire need of debt relief, the United Nations said on Tuesday.
In a new report, the United Nations Development Program has warned that dozens of developing countries are facing a deepening debt crisis and that “the risks of inaction are grave”.
The UNDP said that without immediate relief, at least 54 countries would see poverty levels rise, and that “investment in climate adaptation and mitigation is urgently needed”.
This was alarming because the affected countries are “the most climate-vulnerable in the world”.
The agency’s report, published ahead of meetings of the International Monetary Fund, World Bank, and G20 finance ministers in Washington, highlighted the need for urgent action.
But despite repeated warnings, “so far too little has happened, and the risks are growing,” UNDP chief Acham Steiner told reporters in Geneva.
“This crisis is intensifying and threatens to spill over into a deepening development crisis in dozens of countries around the world.”
Poor, indebted countries face changing economic pressures and many find it impossible to repay their debt or access new financing.
Ups And Downs
“Market conditions are changing rapidly as a concomitant fiscal and monetary contraction and low growth fuel volatility around the world,” the UNDP said.
The UN agency said debt problems were brewing in affected countries long before the Covid-19 pandemic hit.
“The rapid growth in debt over the last decade has been consistently underestimated,” she said.
Debt moratoriums have been lifted during the Covid crisis to lighten their burden and negotiations under the G20 Common Framework during the pandemic have given highly indebted countries a way to restructure their obligations. Moving at a slow pace to help find.
According to the available data, 46 of the 54 countries accumulated public debt totaling $782 billion in 2020, the report said.
Argentina, Ukraine and Venezuela account for more than a third of this amount.
The situation is worsening rapidly, with 19 of the developing countries now effectively out of the lending market – 10 more than at the start of the year.
The Missing Ingredient
UNDP chief economist Jorge Gray Molina told reporters that a third of all developing economies saw their debt as “substantially at risk, highly speculative or in default” during that period.
He said that the countries most at immediate risk are Sri Lanka, Pakistan, Tunisia, Chad and Zambia.
Gray Molina said private lenders have so far been the biggest obstacle to moving forward with the necessary restructuring.
But he suggested that current market conditions could pave the way for debt deals, as private lenders see their holdings fall in value by up to 60 percent.
“When emerging market bonds trade at 40 cents on the dollar, private lenders suddenly become more open to negotiations,” he said.
“The incentives are now to engage in a negotiation where you can accept a haircut of 20 cents on the dollar, 15 cents on the dollar and 30 cents on the dollar.”
But willing creditors aren’t enough to actually pull off a much-needed debt relief agreement, Gray Molina acknowledged.
“The missing ingredients at the moment are financial assurances from the governments of major creditors to make a deal.”
Steiner, who has repeatedly sounded the alarm about the crisis, expressed hope that the international community would finally recognize that action was in everyone’s common interest.
He said that prevention is better than cure and certainly… much cheaper than dealing with a global recession.
