Poorer countries ‘need $310bn to pay their debt bills this year’

Poorer countries need $310 billion to pay their debt bills this year, UN agency UNCTAD said, as it cut its global growth forecast and warned that the current rise in energy and food prices could fuel social unrest, Reuters reported.

Debt crises and further economic contraction are risks in developing countries already struggling to recover from the coronavirus pandemic, the UN trade agency said in a new report which cut its 2022 global GDP growth forecast to 2.5% from 3.5%.

Russia’s invasion of Ukraine has driven up food and commodity prices, piling on economic pressure. Even before it began on Feb. 24, experts and campaigners were warning that developing countries needed more support to avoid debt defaults.

“The global economy is, literally and metaphorically, staring down the barrel of a gun,” the UNCTAD report said.
“With elevated debt levels from the pandemic, sudden currency depreciation can quickly make debt service
unsustainable and tip some countries into a downward spiral of insolvency, recession and arrested development.”

As the pandemic hit global output in 2020, the Group of 20 leading economies launched a temporary debt-service suspension for poor countries, as well as the Common Framework, a debt-restructuring scheme.

The Debt Service Suspension Initiative (DSSI) has now expired. Having signed up for the Common Framework a year ago, Zambia, Ethiopia and Chad have yet to receive relief.

UNCTAD noted that developing country bond yields had gone up an average of 36 basis points in the month since Russia invaded Ukraine, having already been rising since September, with yields in countries dependent on food imports increasing the most.

Countries “vulnerable” to debt shocks include Sri Lanka, Mongolia, Egypt, Pakistan and Angola, UNCTAD said, citing the struggles these countries will have to refinance or “roll over” the debts.

Sri Lanka and Egypt have both sought help from the International Monetary Fund in recent weeks, while Pakistan and Angola already have programmes with the fund.

“The danger for many of the developing countries that are heavily reliant on food and fuel imports is more profound as higher prices threaten livelihoods,” UNCTAD added.