Yahoo Finance Western governments told to suspend debt interest amid Covid-19
Western governments are being told to suspend the collection of debt interest from developing nations to prevent a new debt crisis for the world’s poorest countries as the coronavirus outbreak escalates.
The International Monetary Fund and the World Bank called on governments that lend to poorer nations to agree to requests for forbearance from poorer nations and to delay taking debt payment, allowing time for assessment of the crisis.
The Washington-based global lenders said the economic shock from efforts to contain the coronavirus was likely to have severe financial and social consequences for poorer countries in the global south, home to two-thirds of the world’s population living in extreme poverty.
In a joint statement to the G20 group of the world’s most advanced economies, the IMF and the World Bank said creditor governments should suspend debt payments from countries that request forbearance. “It is imperative at this moment to provide a global sense of relief for developing countries as well as a strong signal to financial markets,” the organisations said.
Borrowing costs for low-income countries have surged in recent weeks as investors ditch riskier assets. Several developing countries are starting to impose lockdown measures, including South Africa and India, and are at risk of a severe economic downturn owing to close trade ties to other nations hit by the disease.
A slump in Chinese demand has unsettled global commodity markets and is set to have severe implications for African exporters. According to the consultancy Oxford Economics, Angola exports 60% of all goods to China, while Ethiopia, Namibia, Rwanda, Kenya and Cameroon are also expected to suffer trade shocks.
In past health crises, developing countries have relied heavily on international aid to fund healthcare costs in the face of falling tax revenue. In the case of Ebola, foreign aid financed between a half and three-quarters of the shortfall in public finances, according to research from the Resolution Foundation.
According to Jubilee Debt Campaign calculations using World Bank data, developing nations are due to spend $18.1bn (£15.3bn) on debt payments to other governments in 2020, around $12.4bn to multilateral institutions such as the IMF and World Bank, and $10.1bn to private creditors.
Tim Jones, the head of policy at the Jubilee Debt Campaign, said a debt moratorium was urgently needed for poorer countries, adding that the IMF and World Bank ought to waive payments to themselves in the crisis and urge private investors to suspend taking debt payments.
“It would be outrageous if private speculators keep taking high interest payments from poor countries at this time of crisis,” Jones said.
