Developing countries are being hardest hit by the COVID crisis – unfortunately, they lack the financing mechanisms widely used across the EU to mitigate the worst impacts of the pandemic. A fall in exports and commodity prices has wiped out anticipated revenue, and with the expectation of recovery being pushed out to 2022 and beyond, hunger and poverty are skyrocketing. The sense of urgency will only grow. However, European institutions and Member States like Ireland could reduce the burden on developing nations by facilitating and supporting debt relief for the world’s poorest countries.
The World Bank and the IMF have already called for an unconditional moratorium on debt interest payments for poor countries. This move – if supported – would free up an estimated $44 billion in Africa alone, which could then be allocated to public health services. Cancelling the debt is the easiest way to keep money in country and free up resources to tackle the urgent health, social and economic crises resulting from the pandemic.
Shockingly, in 2018, the total debts of developing countries were 191 percent of their combined GDP. They were due to pay approximately $400 billion of debt repayments this year. In light of the coronavirus crisis, in particular, it makes no sense for poorer countries to transfer vital resources to rich nations. Before the pandemic, 46 countries were spending on average four times more on repaying debt than on their public health services. As the virus took hold, the costs of the debt burden continued to be paid through cuts to the state services of the world’s poorest people, with women being the hardest hit.
The United Nations has called for $2.5 trillion to rescue the economies of developing countries in the time of coronavirus. This funding would include debt release, aid for health systems, as well as creating additional finance flows, including the issuing of Special Drawing Rights. Experts have encouraged G20 leaders to lead this call for funding as they warn of “unimaginable health and social impacts”.
Debt relief is a must – not an option – and is vital to provide fiscal space to invest in health and economic recovery.
