UN agency calls for $1 trillion developing world debt write-off

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A man wearing a mask as a preventive measure against the spread of the Covid-19 coronavirus walks in an empty taxi park in Kampala, Uganda, on March 26, 2020. PHOTO | BADRU KATUMBA | AFP
File photo: A man wearing a mask as a preventive measure against the spread of the Covid-19 coronavirus walks in an empty taxi park in Kampala, Uganda, on March 26, 2020. PHOTO | BADRU KATUMBA | AFP.

Around $1 trillion of debt owed by developing countries would be cancelled under a global deal proposed by the United Nations Conference on Trade and Development (UNCTAD) on Thursday to help them overcome the impact of the coronavirus pandemic.

The world’s developing economies, which were already struggling with a rapidly growing debt burden, must now confront a record global downturn, plummeting prices for their oil and commodities exports and weakening local currencies.

At the same time, they need to spend more money on healthcare and to protect their economies. Some 64 low-income countries currently spend more on debt service than their health systems, according to UNCTAD.

“This is a world where defaults by developing nations on their debt is inevitable,” Richard Kozul-Wright, director of UNCTAD’s Division on Globalisation and Development Strategies, said during a video conference with journalists.

In a report calling for a plan to relieve developing countries’ debt burden, UNCTAD estimated their liquidity and financing requirements due to the pandemic amount to at least $2.5 trillion.

High-income developing countries have debt service obligations of between $2 to $2.3 trillion in 2020 and 2021 alone, while middle and low-income countries have debt service obligations of $700 billion to $1.1 trillion.

Having poured some $8 trillion into stimulus for their own economies, the Group of 20 wealthy nations (G20) last week agreed to suspend the bilateral debt service payments by the world’s poorest countries until the end of the year.

“It’s kicking the can down the road,” Kozul-Wright said. “You extend the problem and you pretend it’s going to go away in two or three years time if growth picks up in the world economy. We don’t think this is credible.”

UNCTAD calculated the G20’s debt moratorium would cover $20 billion of public debt to official bilateral creditors.

An additional $8 billion would be included if all private creditors joined the initiative, and a further $12 billion if all multilateral creditors did as well.

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