Western governments are urged to suspend debt collection from developing countries to prevent a new debt crisis for the world’s poorest countries as the outbreak of the corona virus escalates.
The International Monetary Fund and the World Bank urged governments that lend to poorer nations to agree to poorer nations’ requests for leniency and to delay debt payments to allow time to assess the crisis.
Washington-based global lenders said the economic shock from efforts to curb the corona virus would likely have serious financial and social consequences for poorer countries in the global south, where two-thirds of the world’s population live in extreme poverty.
In a joint statement to the G20 group of the most advanced economies in the world, the IMF and the World Bank said that creditor governments should suspend debt payments from countries that ask for forgiveness. “At this moment, it is essential to give developing countries a global sense of relief and a strong signal to financial markets,” said the organizations.
Borrowing costs for low-income countries have increased in recent weeks as investors move out of riskier assets. Several developing countries, including South Africa and India, are starting to implement blocking measures, and close trade ties with other countries affected by the disease pose a serious economic downturn.
A slump in Chinese demand has unsettled global commodity markets and will have a serious impact on African exporters. According to the consulting firm Oxford Economics, Angola exports 60% of all goods to China, while Ethiopia, Namibia, Rwanda, Kenya and Cameroon are also likely to suffer trade shocks.
In earlier health crises, developing countries have relied heavily on international aid to help finance healthcare costs due to falling tax revenues. In the case of Ebola, foreign aid funded between half and three-quarters of the public finance deficit, according to the Resolution Foundation.
According to calculations by the Jubilee Debt Campaign using data from the World Bank, developing countries are expected to spend $ 18.1 billion (£ 15.3 billion) on debt payments to other governments in 2020, around $ 12.4 billion for multilateral institutions such as the IMF and the World Bank, and $ 10.1 billion to private creditors.
Tim Jones, the political director of the anniversary debt campaign, said a debt moratorium is urgently needed for poorer countries. The IMF and the World Bank should refrain from making payments to themselves in the crisis and urge private investors to suspend borrowing.
“It would be outrageous if private speculators continued to receive high interest payments from poor countries during this crisis,” said Jones.