The UNDP, in a new report, has called for expanded debt relief to all developing countries and faster, more equitable vaccination to tackle the serious threat posed by the raging Covid-19 pandemic.
In the shadow of the coronavirus crisis, the poorer countries face a new development crisis compounded by a worsening debt burden. Another burning issue is lack of vaccine funding and production for poor countries. Unfortunately, so far 84 percent of Covid-19 vaccines administered has gone to wealthier countries, whereas a majority of the world population living in Third World countries remains vulnerable to the deadly virus.
While the world’s largest economies have been able to raise over $18 trillion in fiscal support to keep their economies going, most developing countries face financing constraints to mobilise sufficient resources to tackle the economic fallout of the pandemic.
According to an estimate, the least developed countries have spent 580 times less in per capita terms on their Covid-19 response than advanced economies. This contrast is amply reflected in the distribution of the global stock of vaccines among the rich and poor countries.
The United Nations has called upon stakeholders to offer legal and technical advice on options for debt and debt service relief, expand debt relief eligibility to include additional vulnerable countries on a case-by-case basis, and consider other mechanisms that would allow countries to access debt relief without jeopardizing their credit ratings.
To quote a UN official, “The economic and social costs of the Covid-19 pandemic have been unprecedented. The global economy contracted 4.3 percent in 2020, significantly more than during the 2008-2009 financial crisis.”
In view of the precarious global economic situation, the United Nations Secretary-General António Guterres has urged governments and creditors to extend liquidity and debt relief to all developing countries.
According to the UN, among the most vulnerable countries, the general availability of vaccines could be many months, if not years, away. “The risk of another lost decade of development and a failure to achieve the Sustainable Development Goals is high and rising. To help mitigate this risk, donors must meet their aid commitments and provide fresh concessional financing, especially but not only for the poorest countries”.
The debt burden was already very high in many developing economies when the pandemic broke. For many countries, debt problems extend beyond what can be handled by short-term liquidity support or debt moratoria, as offered to 73 countries by the Debt Service Suspension Initiative (DSSI). The Common Framework on Debt Treatment Beyond the DSSI, agreed last year by the Group of 20 largest economies, “marks a turning point as it offers a systematic way to restructure unsustainable debt.”
However, there are many vulnerable economies, including some middle-income economies and small island development states, which are not covered by the current debt relief measures. A new UNDP report says that just under one third of highly indebted, vulnerable developing economies are ineligible for these relief measures, and that these countries account for more than two-thirds of total estimated external public debt service payments at risk from 2021-2025. Specifically, 72 countries, or 60 percent of all developing economies evaluated, are highly debt-vulnerable, and 19 severely so. Those 19 economies account for US$220 billion of debt payments at-risk.
The report titled Sovereign Debt Vulnerabilities in Developing Economies says that a minimum US$598 billion of external public debt service payments are at risk from 2021-2025 across the 72 countries studied, with US$311 billion owed to private creditors. Beyond the risk of defaults, there is the possibility of a prolonged debt crisis that may leave countries groaning under crushing debt burdens for years. This would mean that many governments in the developing world would not be able to undertake development projects to benefit their people and address the problems posed by climate change.
This is a time for both the rich and poor countries to join hands to meet the challenge ahead. This will call for mounting efforts on a wide front to rebuild the global economy on a more sustainable basis, including revamped tax and trade policies along with scaled-up efforts to combat illicit financial flows, all of which must prioritize tackling the climate crisis and surging inequalities globally.
In the meantime, all governments must keep up fiscal support for their economies and vulnerable citizens and businesses until the pandemic is completely eliminated. In this context, the International Monetary Fund (IMF) has proposed a new allocation of US$650 billion in the form of “Special Drawing Rights,” which would provide much needed liquidity to poorer countries.
The coronavirus spread and the resulting lockdowns have impoverished large groups of people both in the developed and developing worlds. Tens of millions have lost their jobs or are earning less than before. This has impacted women more amid a rapid rise in gender-based violence. Any relief and rehabilitation measures must pay special attention to this aspect of the situation.