If you too are thinking like others that it was only Srilanka which got bankrupt as it was highlighted in the news then you are delusional! By the final sunset of the year 2022, Lebanon, Suriname, and Zambia were legally insolvent. Pakistan, Argentina, Ghana, Egypt, and El-Salvador are close to becoming bankrupt. At the G-20 meeting in Bali last year, Secretary-General of the United Nations, Antonio Guterres caused a sensation by announcing that many developing countries are on the brink of dire economic ruin. And there will be unimaginable poverty. India has associated the G-20 forum with the promotion of ‘Brand-India’, but the harsh reality is that the G-20, which is annually chaired by India, is responsible for rescuing about 53 countries from debt crises and rescuing financial markets.
A World Bank report says that most of the countries that have defaulted or are close to defaulting are developing economies. They have taken huge loans over the past decade, now with rising interest rates pushing them close to ruin. The total external debt of developing countries reached $11.1 trillion in 2021, up from $4.1 trillion in 2009 and $2.1 trillion in 2000. The debt-to-income ratio of these countries now stands at 31%, up from 21% in 2008. In this foreign debt, governments owe themselves and companies too.
The borrowing pattern of governments has changed over the past decade. Governments and investors in developing and emerging economies flocked to the loan market, as capital was cheap. For the first time, the poor countries of sub-Saharan Africa issued bonds and took loans in the world markets. Developing countries were getting an opportunity to borrow in their own currency at a slightly higher interest rate, which was not the case earlier. By 2010, nearly 90% of global bonds of developing countries were denominated in domestic currencies. Governments also took expensive commercial loans during this time. By 2020, the share of private debt in the total debt of developing countries has increased to 62% from 42% in 2000.
In December 2019, the IMF warned of 40 developing countries falling into debt crisis. In 2020, 51 countries’ sovereign credit has declined, meaning their ability to repay loans has begun to break down. The 2022 World Bank Development Report stated that as many as 20 investors in loans to developing countries were non-governmental, and governments have to repay the loans to them.
The economic slowdown and credit crunch have caused developing country currencies to collapse, depleting foreign exchange reserves. Sri Lanka, Pakistan, Egypt are witness to it. The report of the World Bank says that the inflation of dollar-denominated loans in Latin American and Caribbean countries is getting heavy. Their foreign debt has reached 160% of their exports. For the first time in 50 years, around 53 countries are on the brink of debt default, most of which are poor and middle-income countries. In which about 18% of the world’s population lives, but their participation in the world’s GDP is only 5%. Blowing the debt will prove to be a decisive ruin for them. The IMF cannot help much after a certain point. That is why Pakistan is in trouble. After IMF help, governments are compelled to raise taxes, change exchange rates, cut government spending, which also increases political crisis.
Brady bonds were launched in the late 1980s to provide debt relief to emerging markets economies by replacing their existing sovereign debt with dollar-denominated debt backed by long term U.S Treasury bonds. They were trading in the bond market. But even such efforts are not enough. The rich countries of the world, the IMF and the World Bank must waive debts for projects that create sustainable employment in debtor countries and initiate efforts to ease the burden of loans. Through which the productivity of the indebted countries is not affected, chaos is not created and the well-being of the citizens is maintained.
Kalpesh has a rich experience of 10 years of handling and leading various projects. He is an independent freelancer associated with Academic Institutions and Social Organizations. He can be mailed at kalpeshsavan@gmail.com
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