Debt burden of least developed countries rises to record US$744bn in 2019 – World Bank

GLOBAL Least developed countries owed external creditors a total of US$744 billion in 2019 according to World Bank’s latest edition of the International Debt Statistics (IDS).

The report which was released in response to an urgent need for greater debt transparency portrays a worrying picture of the debt situations in countries with the least ability to honor their obligations.

According to the World Bank, the pace of debt accumulation for these countries was nearly twice the rate of other low- and middle-income countries in 2019.

World Bank said the debt situation of these countries highlights an urgent need for creditors and borrowers alike to collaborate to stave off the growing risk of sovereign-debt crises triggered by the COVID-19 pandemic.

Before the onset of the COVID-19 pandemic, rising public debt levels were already a cause for concern, particularly in many of the world’s poorest countries.

The World Bank and the International Finance Institution had called for a Debt Service Suspension Initiative help up to 73 of the poorest countries manage the impact of the COVID-19 pandemic.

This initiative was later endorsed by the G-20 countries which together account for 17 percent of long-term net debt flows to low- and middle-income countries and if implemented may provide reprieve for the world’s poorest nations.

United Nations says that external debt burden represents one of the main obstacles to economic and social development of the least developed since it diverted much of the resources needed for their development to debt servicing.

The countries are already faced with many development challenges including the eradication of poverty, human resources development, transformation of the productive structures of their economies and the horizontal and vertical diversification of the commodity sector.

 They must also concern themselves with the reduction of very high levels of unemployment and under-employment, and the provision of the basic necessities of life, such as clean water, health care and education.

Their growth and sustainable development however become constrained, while efforts to reduce poverty were being stifled as these countries struggle to pay their debts.

Interestingly, this is not the first time least developed countries are being faced with a debt crisis.

In 1996, these countries benefited from a Heavily Indebted Poor Country (HIPC) Initiative courtesy of the World Bank, the International Monetary Fund (IMF) and other multilateral, bilateral and commercial creditors.

The debt crisis of today could however prove to be even harder to sort out as most debt in recent years is usually in the form of bonds, which are popular with private investment firms.

The investment funds in turn placed it with client pension funds, family offices and exchange-traded funds.

And these entities have their own interests and their own rules, which will complicate any effort to negotiate easier terms for the borrowers, such as stretched-out payment schedules, lower interest rates or reduced principal.

Decisions by the I.M.F., World Bank and G20 to let the countries skip payments will certainly free up cash, but more needs to be done to help this countries sustainably manage their debts.

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