Poor countries forced to cut public spending to pay debts, campaigners say | Economics

The lack of an effective debt relief scheme is forcing some of the world’s poorest countries to cut public spending to keep up payments to their creditors, research reveals.

A report by Debt Justice says the most heavily indebted nations were expected to reduce public expenditure by 3% on average between 2019 and 2023 despite the need to counter the impact of spiralling food and energy prices.

Using International Monetary Fund data for debt and public spending, the campaign group said the disparity between high and low-debt countries highlighted the need for more comprehensive relief. Low-debt countries will increase spending by an average of 14% between 2019 and 2023.

The report is published to coincide with an inquiry this week by the House of Commons international development select committee into the debt crisis in low-income countries, which is causing concern at both the IMF and the World Bank. Debt Justice – formerly the Jubilee Debt Campaign – said Britain should use its power to make private lenders take part in debt relief.

The group’s senior policy officer, Tess Woolfenden, said: “Lower-income countries are being forced to prioritise debt payments over public spending on healthcare or access to food, right at a time when spending is so urgently needed.”

In the early stages of the Covid-19 pandemic in 2020, the G20 agreed a common framework for the treatment of debt, but no country has yet benefitted from relief through the scheme, in part because of opposition from private lenders.

Noting that 90% of bonds of countries eligible for the G20’s debt relief scheme were governed by English law, Woolfenden said: “The UK must act to make private lenders take part in debt relief. Debt repayments to wealthy lenders should not take precedence over people’s needs in a time of multiple crises.”

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Debt Justice identifies Sierra Leone as one of the countries forced to divert resources from public spending to debt payments. It says the country’s high debt burden was created during the Ebola crisis in 2014 and 2015 but increased as a result of the pandemic. The IMF expects real public spending per person in 2023 to be 20% less than in 2015 and 4% less than in 2019. This low level of spending is then expected to be maintained until at least 2025, Debt Justice says.

Abu Bakarr Kamara, the coordinator at the Budget Advocacy Network in Sierra Leone said: “With Ebola and Covid-19, Sierra Leone has faced two major health crises in recent years, which have collapsed the health sector and the economy. Yet debt payments are taking away resources that are vital for recovery.

“Cancelling Sierra Leone’s debt is one vital tool to help the government increase its fiscal space to invest in the health sector in a transparent and accountable way.”

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