External publications

Avoiding too little, too late: debt relief for a green and inclusive recovery

Volz, Ulrich
External Publications (2021)

in: Kevin P. Gallagher / Gao Haihong (eds.), Building back a better global financial safety net, Boston, MA: Boston University, 88-95

Volltext/Full text

The  COVID-19  crisis  has  been  a  significant  setback  for  global  development.  In  October  2020,  the  World Bank estimated that the pandemic “could push up to 40 million people into extreme poverty” in  Africa  alone  in  2020,  “erasing  at  least  five  years  of  progress  in  fighting  poverty”  (Zeufack  et  al.,  2020: 1). Public debt — which was already unsustainable in many developing countries before COVID-19 — is increasing rapidly and constraining government responses to the health, social, and economic crises caused by the pandemic. The ability of many developing nations to mobilize resources has been hampered due to severe economic contractions,. Many are using 30 percent to 70 percent of what little  government  revenue  to  service  debt  payments  (Bárcena,  2020).  Indicative  of  a  looming  debt  crisis, there have been more credit rating downgrades for emerging markets and developing countries in 2020 than in all previous crises over the past 40 years. According to the International Monetary Fund (IMF), almost half of low-income developing countries were at high risk of debt distress or in debt distress at the end of September 2020 (IMF, 2020a). This analysis does not comprise middle-income countries, many of which are also under severe strain. Many emerging markets and developing economies are facing serious obstacles in obtaining the fiscal space to combat the virus, protect the vulnerable, and mount a green and inclusive recovery. While developed countries have been able to respond forcefully to the crisis — through fiscal policy, loans and loan guarantees to businesses, and quantitative easing policies — the responses of emerging  markets  and  developing  countries  have  been  on  average  much  smaller.  For  many  of  them,  calls  for  “building  back  better”  ring  hollow  unless  they  receive  international  support  to  do  so.  Without  a  resolute global debt relief effort, the goals set out by the international community in the 2030 Agenda for Sustainable Development and the Paris Agreement on climate change will not only be missed, but the progress made to date will be lost.