13
Oct
New figures released this week predict that current rates of lending could lead to debts becoming unsustainable in many impoverished countries over the next decade, just a few years after some had debts cancelled.
Based on analysis of official IMF and World Bank data, the Jubilee Debt Campaign has calculated that two-thirds of impoverished countries face large increases in the share of government income spent on debt payments over the next ten years.
On average, current lending levels will lead to increases of between 85 per cent and 250 per cent in the share of income spent on debt payments, depending on whether economies grow rapidly, or are impacted by economic shocks.
Even if high growth rates are achieved, a quarter of impoverished countries would still see the share of government income spent on debt payments increase rapidly.
Sarah-Jayne Clifton, Director of the Jubilee Debt Campaign, said: “There is a real risk that today’s lending boom is sowing the seeds of a new debt crisis in the developing world, threatening to reverse recent gains in the fight against poverty and inequality.
“The $130 billion of debt cancellation agreed in the 2000s has given countries in Africa and Latin America valuable breathing space to spend scarce government funds on fighting poverty and providing essential public services. But the failure to reform the global debt system so that the root causes of debt crises are addressed means history may be set to repeat itself.”
The figures are based on IMF and World Bank Debt Sustainability Assessments carried out over the last year for 43 impoverished countries.
For these countries, 50 per cent of lending is currently from multilateral institutions such as the IMF, World Bank and African Development Bank; 33 per cent from other governments and 17 per cent from the private sector.
For this sample of 43 countries, Jubilee Debt Campaign has calculated the number of countries where debt payments increase by more than five percentage points of government income for three possible scenarios for the next decade.
The calculations show that:
* 11 countries (26 per cent) are at risk even if IMF and World Bank predictions of continuous high economic growth over the next decade are met.
* 25 countries (58 per cent) are at risk if IMF and World Bank estimates of one economic shock over the next decade actually take place.
* 29 countries (67 per cent) are at risk if growth is lower than IMF and World Bank predictions, but still substantial.
For example, Ghana’s external debt payments are predicted by the IMF and World Bank to increase from 12 per cent of government income today to 25 per cent by 2023 even if the economy grows by 5.6 per cent a year. If the West African country suffers one economic shock, debt payments would increase to 37 per cent of income. If the country experiences lower economic growth over the next decade, payments would rise to 50 per cent of government income.
In Haiti, debt payments are predicted to increase from three per cent of income today to 14 per cent by 2024. However, with one economic shock they rise to 22 per cent of income, and 31 per cent if growth is lower.
Both Ghana and Haiti had some debts cancelled in 2004 and 2009 respectively. However, in both cases debt payments are predicted to be a greater share of government income by the 2020s than they were before countries received debt relief. In total, of the 25 countries in the study which have had some debts cancelled, between 28 per cent and 64 per cent will have debt payments as high or higher than before debt relief over the next decade, depending on how economies perform.
Sarah-Jayne Clifton continued: “The shocking thing is that public bodies like the World Bank are leading the lending boom, not just reckless private lenders hunting for returns. Urgent measures are needed now to prevent a new debt crisis, including less aid money being given as ‘loans’, and the creation of a fair, independent and comprehensive debt arbitration process so that irresponsible lenders know they will no longer be bailed out for their reckless actions.”
The Jubilee Debt Campaign is part of a global movement demanding freedom from the slavery of unjust debts and a new financial system that puts people first.
* Read the full research report here (*.PDF Adobe Acrobat document): http://jubileedebt.org.uk/wp-content/uploads/2014/10/Lending-boom-resear…
Source: http://www.ekklesia.co.uk/node/20934