The world’s 75 poorest countries are scheduled to pay US$60bn (AU$93bn) of debts to external creditors in 2020 – more than they are set to receive in donor aid to combat COVID-19.
This burden will rob them of the financial resources they need for investment in testing, medical equipment, health workers and safety nets to battle the outbreak, and will push millions more children into poverty, Save the children warned today.
In an open letter to G20 finance ministers, including Australian Treasurer Josh Frydenberg, ahead of the Spring Meetings of the IMF-World Bank, the agency urges the US$60bn of debt payments to be converted into an investment fund for combating the coronavirus pandemic.
“Providing aid through the World Bank and other donors while allowing commercial debt payments to absorb a large share of the transfer would be the financial equivalent of pouring water into a bucket with large holes,” the letter states.
Without a suspension of debt payments, governments in sub-Saharan Africa will spend more on debt than on health, the agency warns.
The letter also states: “Governments in these countries are now confronted with an invidious choice. They can either repay creditors, or they can invest in the front-line health services, safety nets, and economic recovery measures needed to mitigate the pandemic, combat poverty, and restore inclusive growth. They cannot do both. If debt takes precedence over people, children will be hit first and hit hardest.”
Save the Children has welcomed proposals to suspend payments on official bilateral credit owed to governments but strongly urges the G20 to go further. Commercial creditors account for almost half of total repayments from the poorest countries – and the agency wants banks, commodity traders and sovereign bond holders to match government debt relief.
Save the Children Australia CEO Paul Ronalds said: “It’s not just about financial management but about saving and protecting the lives and futures of vulnerable families, particularly children. If world leaders fail to act decisively now, we could see a ‘lost decade’ in which there are rapid reversals in the reduction of poverty, malnutrition and child mortality.”
With economic recession biting, countries across the developing world are fighting a deadly mix of COVID-19 and rising poverty. Based on recent World Bank growth projections, Save the Children estimates that another 22-33 million children could fall into poverty in Africa alone over the next year.
Save the Children is calling for the Spring Meeting of the G20 to agree on a framework for an immediate suspension of debt servicing for countries seeking support, including:
- The Paris Club of creditors, Chinese state creditors and Arab institution creditors to suspend principal and interest repayments with immediate effect;
- Commercial creditors to apply similar terms, with compliance encouraged by making eligibility for COVID-19 recovery financing conditional on participation;
- Increased finance to support multilateral debt relief through the IMF and World Bank.
“If we fail to support the poorest countries right now, it will entrench the financial burden placed on those countries from COVID-19 and ensure it takes many years to recover from. At the same time, if the poorest countries aren’t able to fight COVID-19 effectively, it could open the door to a resurgence of COVID-19 in countries that are now flattening the curve, such as Australia.”
“Debt relief is not only the right thing to do for vulnerable people in poor countries, it is the smart thing to do for all countries,” Mr Ronalds said.
For media inquiries contact Evan Schuurman on 0406 117 937.
Notes to editors:
You can read the full letter here.
- Debt service of 75 IDA-eligible countries is estimated at $62bn in 2020 based on data from World Bank International Debt Statistics, with projections for debt service payments after 2018 are based on actual Public and Publicly Guaranteed long term debt as of end-2018.
- Effects of COVID-19 on child poverty: The World Bank has published its first assessment of the economic impact of Covid-19 in Sub-Saharan Africa, estimating annual GDP growth between -2.5 and -5.1% and associated drops in consumption between -7 and -10%.
- Using the World Bank’s PovcalNet database, we estimate the effects of those changes in consumption on extreme poverty. Poverty headcount may increase to up to 47%, pushing between 40 and 59 million into poverty. With more than half of all people in extreme poverty being children, those estimates suggest that between 22 and 33 million children will be pushed into poverty by the economic consequences of Covid-19.
- Government health expenditure across all IDA countries (69 of 75 countries for which data exists) totals at $23.4bn, or $12.3bn for IDA-eligible countries in Sub Sahara Africa. Numbers from 2017 (last year for which data exists).