The Quiet before the Storm: Eurodad Report warns about Debt Crisis yet to come

A recently published report by the “The European Network on Debt and Development” calls the apparent financial resilience of developing countries in the aftermath of the Covid-19 shock “misleading” and highlights the importance of debt relief for the 2030 Agenda, the Paris Climate Agreement and the Beijing Declaration.

According to the briefing “A debt pandemic: Dynamics and implications of the debt crisis of 2020”, public debt of developing countries has increased from an average of 40 to over 60 percent of GDP within the last ten years. More than one-third of the increase took place in 2020 alone. 

However, more serious developments are yet to come, as the report highlights. The apparent resilience of the Global South “is the result of a combination of cyclical factors in the form of sectoral adjustments and monetary policy responses triggered by the pandemic. A response based on renewed borrowing to address the impact of the pandemic is the equivalent of dousing a raging fire with gas. It increases the external financial fragility of developing countries.”

The text goes on by explaining more mechanisms that lead to the deceptive impression that the debt crisis is not hitting developing countries as hard as assumed. It then warns about the consequences if “urgent and systemic measures aimed at the provision of immediate debt relief and the establishment of a multilateral debt workout mechanism under the auspices of the UN” would not be implemented: 

“With more debt and no relief in sight, developing countries will be forced to implement austerity measures on an unprecedented scale. Primary expenditures are projected to contract below pre-crisis levels in at least 70 countries by 2025. The widespread decline in expenditures runs counter to the investments required to meet the commitments under the 2030 Agenda, the Paris Climate Agreement and the Beijing Declaration.” 

Eventually, the report calls the international community to “recognise that the health and wellbeing of millions of people in developing countries is a precondition for debt sustainability. It will be impossible to achieve one without the other.” 

Read the whole report here.

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