Fears are growing that action by the US central bank to combat high inflation will trigger a fresh debt crisis, as it emerged poor-country repayments to creditors are already running at their highest level in two decades.
The Jubilee Debt Campaign said debt payments by developing countries had more than doubled since 2010 and were likely to increase further if, as expected, the Federal Reserve pushed up interest rates.
Urging deeper debt relief, the JDC said payments to creditors already accounted for 14.3% of poor-country government revenue in 2021, up from 6.8% in 2010 and the highest level since 2001.
Many poor countries have borrowed in US dollars, exposing them to the dual risk of higher borrowing costs and a weakening of their currencies against the greenback.
The World Bank and the International Monetary Fund have called for more comprehensive relief. Of the external debt payments by low- and lower middle-income governments, 47% are to private lenders, 27% to multilateral institutions such as the Bank and the IMF, 12% to China and 14% to governments other than China.
Heidi Chow, the executive director of Jubilee Debt Campaign, said: “The debt crisis has already stripped countries of the resources needed to tackle the climate emergency and the continued disruption from Covid, while rising interest rates threaten to sink countries in even more debt.”
The campaign group’s latest analysis found 54 countries were in debt crisis, defined as a situation where payments undermined the ability of a government to protect the basic economic and social rights of its citizens. Kenya and Malawi were among the countries that had been added to the list of countries in crisis, it added.
“G20 leaders cannot keep burying their heads in the sand and wish the debt crisis away,” Chow said. “We urgently need a comprehensive debt cancellation scheme which compels private lenders to take part in debt relief.”
The G20 created a new debt relief scheme at the end of 2020, called the Common Framework, which required countries to negotiate terms with bilateral sovereign creditors and the IMF and then secure the same deal with private creditors. So far, none of the countries that have applied for the Common Framework have had any debt cancelled.