(Geneva) Fifty-four countries, which are home to more than half of the poorest and particularly vulnerable to climate change, urgently need debt relief at the risk of precipitating them into an even more serious crisis, urges the UN on Tuesday.
Posted at 12:24 a.m.
Despite repeated calls for action, “we can say that almost nothing has been done so far”, denounces Achim Steiner, the head of the United Nations Development Program (UNDP).
“And yet, the crisis is intensifying and threatens to turn into a lasting development crisis for dozens of countries”, he warns during the publication of a report on this hot topic, published just in time for the autumn meetings of the IMF, the World Bank, but also the G20 Finance in Washington.
These indebted poor countries currently find themselves confronted with economic phenomena which converge to make it impossible to repay the debt or deprive them of any access to this type of financing.
“Market conditions are changing rapidly because volatility around the world is fueled by fiscal and monetary contraction combined with weak growth,” the UNDP said.
More debt than we see
The crisis deepens as the debt suspension mechanism put in place during the COVID-19 pandemic has expired and the new system created by the G20 (the Common Framework for Debt Treatments) shows up extremely slow.
In the meantime, the debt has continued to swell over the past decade and probably more than the official figures suggest. China plays a very active role in this sector.
According to available data, 46 of the 54 states selected by the UNDP had a total public debt of 782 billion dollars in 2020. It drops to 552 billion if we exclude the three heavyweights on the list (Argentina, Ukraine and Venezuela).
The situation is deteriorating quickly, 19 countries on the list – deemed too risky – are de facto excluded from the market. These are 10 countries more than at the beginning of the year.
And the debt of a third of all developing countries is now classified as “substantial risk, extremely speculative or default” by rating agencies, underlines George Gray Molina, chief economist of the UNDP.
The countries most threatened in the immediate future are Sri Lanka, Pakistan and Tunisia, but also Chad or Zambia, he indicates.
As for the holders of these bonds, they see their value drop sharply to between 40 and 60% of their initial price.
But “when emerging market bonds are trading at 40 cents to the dollar, private creditors are suddenly more willing to negotiate,” Molina notes. According to him, private creditors are currently the main obstacle to the necessary restructuring.
Renegotiate debt
“The motivation is therefore to come to the negotiation table where we could agree to lose 15, 20 or 30 cents per dollar” invested, underlines Mr. Molina.
“But how do you come to an agreement? How can creditors be assured of being reimbursed? And this is where the financial guarantees of some of the largest economies in the world come in, ”insists the economist, while noting that this is what is currently missing.
Achim Steiner, who has already denounced this debt crisis on numerous occasions, recognizes “that we are living in an extremely difficult political period but also a very volatile economic and financial moment”.
The international community, he said, should recognize that “prevention is better than cure and certainly much much cheaper than dealing with a global recession”.