According to a report by Oxfam International, some of the world’s poorest countries are facing a debt crisis that could force them to slash their budgets by more than $220 billion over the next five years. The report, released on Monday at the start of the IMF-World Bank meetings in Marrakech, warns that low- and lower-middle-income countries are spending four times more on debt servicing than on health care and face nearly half a billion dollars a day in interest and debt repayments until 2029.
Based on IMF outlooks, the report says that many developing nations are in debt distress due to rising global interest rates, soaring inflation, and economic shocks following the pandemic. Rating agency Fitch says there have been 14 default events since 2020 across nine sovereigns, including Zambia, Argentina, and Lebanon.
Oxfam urges the IMF and the World Bank to use the crisis as an opportunity to create a fairer system that prioritizes human rights and social justice over debt restructuring and austerity measures. “Their answer to the debt crisis is more austerity, and their answer to the financing gulf is more loans,” Oxfam International interim Executive Director Amitabh Behar said in a statement. “True win-wins, like fairly taxing the rich, are being left on the table.”
The report also calls for a comprehensive and transparent debt relief mechanism that includes all creditors, such as China and private lenders, who hold more than half of the external debt of low-income countries. It also advocates for a global minimum corporate tax rate of at least 21 percent to prevent tax avoidance and evasion by multinational corporations.
Other aid and campaign groups have echoed Oxfam’s debt cancellation and reform demands. Jubilee Debt Campaign, a UK-based organization, says that 72 countries are spending more than 10 percent of government revenue on external debt payments this year, compared to 40 countries before the pandemic. It says that the G20’s Debt Service Suspension Initiative (DSSI), which allows poor countries to defer payments until 2022, is insufficient to address the root causes of the debt crisis.
“The DSSI has provided some breathing space, but it is not a long-term solution. It does not reduce the debt owed, it simply postpones payments,” Sarah-Jayne Clifton, director of Jubilee Debt Campaign, told Al Jazeera. “We need a permanent cancellation of debts to free up public services and social protection resources.”
Clifton added that the IMF’s recent allocation of $650 billion worth of Special Drawing Rights (SDRs), a form of international reserve asset, to its member countries, could be used to support debt relief and recovery efforts in poor countries. She said rich countries should transfer at least $300 billion of their SDRs to low- and middle-income countries and ensure they are used for public spending rather than debt repayments.
Despite the bleak outlook, Oxfam still hopes for a more equitable and sustainable future if the international community acts swiftly and decisively. “The world is at a crossroads. We can either continue down the path of rising inequality and environmental destruction, or we can choose a different way that puts people and planet first,” Behar said.
Source: Reuters
