The increasing financial pressure brought on by the Covid-19 pandemic has prompted a flurry of borrowing in countries across the world. As questions arise about he viability of the spending spree in the developed world, poorer countries are buckling beneath the pressure of debt obligations to private lenders.
Last year, the countries of the G20, encouraged by the World Bank and the IMF, provided billions of dollars of debt relief to the world’s poorer countries. Nevertheless, Argentina, Belize, Lebanon, Suriname and Zambia defaulted on debts amid mounting pressure l last year.
In May, the G20 started the Debt Service Suspension Initiative to relieve the world’s poorer countries from high interest rates. With 40 of the 73 countries eligigble for debt relief have received approximately $5 billion.
Private’s lenders were encouraged to offer similar relief to struggling nations in line with the G20’s scheme. Both Zambia and Chad have requested private lenders give them a break from loan repayments, but banks have declined to do so.
An estimated 59% of Zambia’s debt is owned privately, much of it by UK-based firms. UK lenders own almost a third of poorer countries’ privately-owned debts (not including bonds).
Africa has been particularly hard hit by debt repayments since the pandemic began. African nations will reportedly spend an estimated $23.4 billion on debt payments this year: more than it would cost to vaccinate the entire continent against Covid-19 three times over.
Activists have launched a campaign targeted at the London offices of major lenders, such as HSBC, Blackrock, UBS, and JP Morgan, who could make up to 250% profit from high interest loans if repaid in full, urging them to cancel the debts.
Others have asked that legislators step in to force the banks’ hand so that poorer countries can properly recover from the pandemic.
“The UK can and must pass new laws that will force UK-based companies owning large amounts of Zambia’s debt to agree to debt relief and restructuring, so lower-income countries can recover from the pandemic,” said Dario Kenner, Lead Analyst Sustainable Economic Development at Catholic aid agency Cafod.
The UK-based campaign is led by the Jubilee Debt Campaign, an advocacy group which advocates for ‘debt justice’ and the cancellation of unjust third world debts.
It has noted the devastating impact of the coronovirus on economies in the developing world, estimating that over 150 million people could be pushed into extreme poverty as the result of the pandemic.
Nick Dearden, Director of advocacy group Global Justice Now, has called on banks to reduce debt obligations of poorer countries.
“Without [debt cancellation], more crucial public funds will be diverted away from tackling climate change and supporting healthcare,” he said.