A MAJOR NEW STUDY OF RISING DEBT REPAYMENTS by countries in the global south to private lenders shows a shocking lack of transparency alongside worrying implications for human rights. It has sparked calls on the UK Government to compel private creditors to support debt relief.
The key finding by a consortium of charities, led by the international development agency Christian Aid, is that private sovereign debt is a growing risk to poor and middle-income nations because of rising interest rates and a strong US Dollar.
Kenya, Nigeria, Guatemala and El Salvador are just four examples where increasingly expensive commercial loans are used for development projects and plugging holes in tax income.
Christian Aid is warning that issuing bonds and borrowing from non-government or multilateral lenders is backfiring. The charity says the effects of the global pandemic, a deepening climate crisis and the war in Ukraine are causing a worldwide economic downturn leading to increasing need for public spending, making the existing debt problem even worse.
The analysis highlights the rise in interest rates around the world to push down inflation, which means that paying back private loans in US$ is becoming even more expensive with every increase in the dollar’s value against other currencies.
Christian Aid is calling on the UK Government to:
- Use its influence to support debt relief and compel private creditors to take part in existing IMF mechanisms.
- Make public details of private commercial loan agreements to ensure proper scrutiny and discourage risky lending and borrowing.
- Ensure debts are assessed on their contribution to sustainable and fair development – not on a country’s ability to pay.
Karimi Kinoti, Christian Aid’s Interim Director of Policy in Africa, said: “The impact of the climate crisis, conflict and Covid-19 has left people who were already struggling without [a] way to feed their families. This additional financial threat has all the explosive ingredients to cause a devastating debt crisis.
“Not only that, the diversion of limited public funds to pay back expensive private debt acts like a chokehold on too many national economies in the global south. Money should be going to where it’s most needed, like adapting farming to climate change and better health services.Take Nigeria’s health budget. It has steadily declined as a proportion of national income from five per cent in 2003 to three per cent in 2019. During the same period, the annual costs of private debts have skyrocketed.
“The UK Government has a moral obligation to act. Ministers should use their influence compel private creditors to support debt relief and ensure debt is assessed on the contribution to sustainable development and not on a country’s ability to pay.”
The research will be published later this year and was carried out by Tax Justice Network-Africa, the Civil Society Legislative Advocacy Centre and Instituto Centroamericano de Estudios Fiscales, in collaboration with Christian Aid. It looked at the implications of private sovereign debt for the people and economies of Kenya, Nigeria, Guatemala and El Salvador.
The latest IMF World Economic Outlook says that diverging policy paths in the largest economies could exacerbate the US dollar’s appreciation, and tightening global financing could trigger emerging market debt distress.
* Source: Christian Aid