A new study warns developing countries will have difficulty recovering from the devastating impact of the COVID-19 pandemic without relief from crushing debt burdens keeping them mired in poverty. The U.N. Development Program (UNDP) is releasing the study ahead of next week’s World Bank-International Monetary Fund meetings.
The study finds 120 low- and middle-income economies will owe more than $1 trillion in debt service payments this year. It reports 72 countries, classified as vulnerable, are responsible for more than half that accumulated debt.
UNDP administrator Achim Steiner says these 72 countries are facing sovereignty or liquidity challenges that will crowd out important socioeconomic expenditures crucial for the well-being of their people.
“We need bold new mechanisms. These are urgently needed to help low- and middle-income countries address crippling debt, which has been sharply worsened by COVID-19 and which will prevent vital investments to tackle poverty and climate change for years to come. Investments that we are seeing in a number of wealthier countries now playing out and unfolding. … The service of public debt crowds out room for these investment in developing countries,” he said.
Steiner said most of the advanced economies are looking forward to a rapid recovery from the pandemic this year. However, the same cannot be said for the poorer countries. He said they are facing increasing poverty as COVID-19 continues to wreak havoc with the physical and economic health of their societies.
Steiner said a number of wealthier countries are investing significant amounts of money in stimulus packages to tackle the pandemic and boost their economies. He said similar investments are needed in developing countries, adding they would be transformative.
For example, he said, funding in Africa could help the continent recover from the pandemic based on green energy technology.
“There are, as of this year, still 600 million people on the African continent that have no access to electricity. Nothing would be simpler than to drive their recovery and an energy transition with a significant investment in renewable energy infrastructure — helping to both accelerate development on the continent and accelerate the transition towards clean energy infrastructure for what will soon be 2 billion people on the African continent by the middle of the century,” Steiner said.
UNDP economists say debt distress and vulnerability do not just threaten the poorest countries. They say middle-income countries and small island states also are buckling under heavy debt burdens.
They urge delegates attending next week’s World Bank-IMF meeting to agree to provide liquidity support to all seriously indebted countries. Given the magnitude of the crisis, they say a combination of debt restructuring, additional financing and reforms are needed.