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UNCTAD calls for setting up an international body to oversee developing-country debt relief programmes

D Ravi Kanth Geneva | Updated on April 24, 2020 Published on April 24, 2020

Amidst the hardship caused by the Covid-19 pandemic, developing countries may see their public external debt increase to $2.4-3.6 trillion in 2020 and 2021 requiring a new international body to oversee developing country debt relief programmes, the United Nations Conference on Trade and Development(UNCTAD) said in a report on Thursday.

In its latest Trade and Development Report, UNCTAD has called for far reaching measures to ward off “looming debt disaster in developing countries reeling from the economic fallout from the pandemic.”

UNCTAD’s TDR is the only credible barometer that continues to address the real economic problems being faced by developing countries which are subjected to untold misery and hardship, says a development analyst tracking the various relief programmes .

The TDR called for a global debt deal for the developing world and underlined the vital need for decisive action to provide substantive debt relief to free up resources to respond to the raging pandemic.

On 30 March, UNCTAD called for a $2.5-trillion coronavirus crisis package for developing countries.

Even prior to the crisis, many of these countries saw increasing shares of their government revenues going to debt repayments, squeezing health and social expenditures.

There is an urgent need for international community to provide a credible package without converting debt relief into future loan obligations.

Richard Kozul-Wright, the renowned macro-economic expert at UNCTAD, told BusinessLine, “developing countries now face a wall of debt service repayments throughout the 2020s. In 2020 and 2021 alone, repayments on their public external debt are estimated at nearly $3.4 trillion — between $2 trillion and $2.3 trillion in high-income developing countries and between $666 billion and $1.06 trillion in middle- and low-income countries.”

India has sought $2 billion from the World Bank to sustain its its social sector programmes due to acute resource crunch. The World Bank has asked for certain loan guarantees, including portability of ration cards and insurance programs, according to people familiar with India’s loan application.

Even before the coronavirus pandemic hit developing economies, many of them are trapped in a debt-spiral — struggling with unsustainable debt burdens for many years, as well as with rising health and economic needs.

The financial turmoil from the crisis has triggered record portfolio capital outflows from emerging economies and sharp currency devaluations in developing countries, making servicing their debts more onerous.

“Recent calls for international solidarity point in the right direction,” said Kozul-Wright adding “but have so far delivered little tangible support for developing countries as they tackle the immediate impacts of the pandemic and its economic repercussions.”

The latest report outlined three key steps — “automatic temporary standstills”, “debt relief and restructure programmes,” and an “international developing country debt authority”.

The “automatic temporary standstill,” according to Kozul-Wright, “would provide macroeconomic “breathing space” for all crisis-stricken developing countries requesting forbearance to free up resources, normally dedicated to servicing external sovereign debt.”

Further, if the standstills are long and comprehensive enough they would facilitate an effective response to the Covid-19 shock through increased health and social expenditure in the immediate future and allow for post-crisis economic recovery along sustainable growth, fiscal and trade balance trajectories.

As part of the debt relief and restricting programs, Kozul-Wright says such programs would ensure the “breathing space” gained under the first step is used to reassess longer-term developing country debt sustainability, on a case-by-case basis.”

On April 13, the IMF cancelled debt repayments due to it by the 25 poorest developing economies for the next six months. This debt cancellation is estimated at around $215 million.

On 15 April, leaders of the Group of 20 leading economies (G20) announced the suspension of debt service payments for 73 of the poorest countries from May to the end of this year.

However, more systematic, transparent and coordinated measures to write- off developing country debt across the board are urgently needed, the report says. It suggests that a trillion dollar write-off would be closer to the figure needed to prevent economic disaster across the developing world.

And lastly, for proper implementation of the above two steps, the UNCTAD report proposes the establishment of an International Developing Country Debt Authority (IDCDA) to oversee their implementation and lay the institutional and regulatory foundations for a more permanent international framework to guide sovereign debt restructuring in future.

“This could follow the path of setting up an autonomous international organisation by way of an international treaty between concerned states. Essential to any such international agreement would be the swift establishment of an advisory body of experts with entire independence of any creditor or debtor interests,” it has argued.

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Published on April 24, 2020
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