The coronavirus has played havoc with all the economies of the world but for the emerging and low-income countries that are already debt-ridden, the blow is doubly hard.
Along with facing the public health crisis, they are continuing to pay off debts to rich countries, public institutions like the World Bank and IMF, and some of the richest banks and hedge funds in the world. This means they have less money to meet the immediate needs of the population.
Five African countries - Ghana, Kenya, Nigeria, Senegal and Zambia are facing a tough financial crisis due to the debt payments. Private creditors’ share like the HSBC, Goldman Sachs, Legal and general JP Morgan and UBS of the foreign debts of low- and lower-middle income governments increased from 25% in 2010 to 47% in 2018. Multi-trillion dollar asset manager BlackRock alone holds close to US$1 billion of ‘Eurobonds’ in Ghana, Kenya, Nigeria, Senegal and Zambia through a number of funds. Blackrock’s assets are worth 2.5 times more than the GDP of the entire African continent.
In total, $13 billion in debt service payments from these countries to private creditors are due between the start of May and the end of 2020.
As per the report, in 73 of the lowest income developing countries - those eligible for the G20’s April 2020 Debt Servicing Suspension Initiative (DSSI) – around one-third, or, 27% debt was owed to private creditors.
The G20 has called on private creditors to voluntarily suspend some debt payments but it has not happened, forcing the World Bank President David Malpass to remark in early October, “These investors are not doing enough and I am disappointed with them.”
There is no regulatory compulsion on private creditors to disclose. This gives private creditors enormous power over developing countries.
G20 countries have agreed on some debt relief to the countries, the private companies are not included in this though their debts tend to carry higher interest rates. Countries like Zambia have requested relief from private creditors, but their request was summarily turned down by the private creditors, showing the power they wield.
And ironically the debt relief extended to these countries by the rich group of G20 will now go as debt service payment to the private creditors.
The report on the state of debt-credit in the African continent has been done by the Global Justice Now, CAFOD, Christian Aid, Jubilee Debt Campaign and Oxfam.
The group says that the debt system is opaque and heavily weighted in favor of big financial corporations. The group wants eh private funds to write down these debts and has called on the international community to restructure the lending system in a fair and equitable way.
They are calling for private-sector creditors to be compelled to write down developing country debts, and for a new international mechanism that would allow for fair, speedy and comprehensive debt restructuring.
“Without urgent reform to the one-sided debt system, the economic crisis will be exacerbated further, leading to unnecessary loss of life and livelihoods.,” says the report.
Nick Dearden of Global Justice Now says, "It is nothing short of obscene for the richest banks in the world to continue collecting debts from the poorest countries in the world, in the middle of one of the worst economic and health crises in living memory. While countries across Africa, Asia and Latin America urgently need to scale up spending, which supports public healthcare and the livelihoods of their citizens, they are instead forced to fill the coffers of multi-trillion dollar investment funds.
“The problems are built into a debt system which punishes the most impoverished people in developing countries for the reckless behaviour of the world’s richest banks. Urgent and radical reform of the debt system is the only way to stop a lost decade of impoverishment.”