Developing country debt must be cancelled to tackle coronavirus crisis
On World Health Day, amid an unprecedented global crisis, more than 200 organisations are calling for developing country debt to be cancelled to fight the Covid-19 health and economic crisis.
- Emergency finance must not add to debt burdens
- Process to reduce debts to sustainable level in future also needed
Cancelling all debt payments owed by low-income countries to other governments, multilateral institutions and private lenders would free up to US$ 25.5 billion to fight coronavirus in 2020 alone. Extending the cancellation to apply to payments due in 2021 would make another US$ 24.9 billion available to help save lives now and in the future.
The IMF and the World Bank have called for debt payments by developing countries to other governments to be suspended, but with the effects of the pandemic likely to last for years, delaying rather than cancelling payments won’t solve the problem.
Cancellation also needs to apply to all creditors, including bilateral, multilateral and private lenders, to ensure freed-up money goes to support the pandemic response, and not to pay off other debts.
Arthur Muliro, Deputy Managing Director at Society for International Development (SID) said: “Millions of people in developing countries are facing devastating health, social and economic crises as a result of the Covid-19 pandemic. Permanently cancelling upcoming debt payments owed by these countries would be the fastest way to free up existing public resources to tackle this unprecedented crisis and to save lives.”
“The suspension on debt payments called for by the IMF and World Bank will fall short of this goal if it doesn’t apply to all lenders, and only postpones payments. Full cancellation of all external debt payments is critical, along with emergency finance that doesn’t add to debt burdens but that instead is used to support public policy priorities in response to the COVID-19 crisis such as public healthcare systems, social protection and support to local food systems and producers”, said Stefano Prato, SID’s Managing Director.
As well as a cancellation of debt service, up to an additional US$ 73.1 billion of emergency finance will be needed to help low income economies as they respond to the crisis in 2020. This must be provided through grants, rather than loans, to prevent recipient countries from getting even deeper into debt. The long-term debt pressures on developing countries also must be addressed, requiring decision-makers to finally agree on reforms to the international system for dealing with sovereign debt restructuring, even more urgent in the context of the COVID-19 crisis.
A joint letter– signed by Society for International Development and over 200 civil society organizations - sent to governments and their representatives at the IMF and World Bank on April 7, calls for:
• The permanent cancellation of all external debt payments due in 2020 by developing countries, with no accrual of interest and charges and no penalties.
• The provision of additional, fresh emergency finance that does not create more debt.
• Debt cancellation and new financing to be provided free of demands for market-friendly and austerity-focused policy reforms in developing countries.
• Measures to be put in place to protect developing countries from lawsuits when ceasing 2020 debt payments.
• A process under UN auspices to be agreed in the longer term, to support systematic, timely, and fair restructuring of sovereign debt.
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