Using the IMF and World Bank’s debt analysis indicators, more than half of LICs are in or at high risk of debt distress.
A (LOOMING) DEBT CRISIS The COVID-19 pandemic left behind a sea of debt. Some African countries are in acute danger of drowning A ccording to the IMF’s Global Debt Database 1 , the global debt burden fiscal deficits reflect ongoing spending pressures as many governments seek to boost growth while post-COVID-19 tax and other revenues remain constrained.
the increase in global debt in recent decades, as as countries' borrowing has outpaced economic growth. However, debt in low-income countries (LICs) – many of which are in sub-Saharan Africa – also increased significantly in the last two decades, which has created challenges and vulnerabilities. A spree of LIC borrowing from capital markets in the post-global financial crisis – aided and abetted by ultra-low interest rates – has led to a multitude of debt problems, for example in Ghana and Zambia, with a restructuring now taking place. Using the IMF and World Bank’s debt analysis indicators, more than half of LICs are in or at high risk of debt distress. Moreover, about one fifth of middle-income countries (MICs) that have issued sovereign bonds now see their bonds trading at distressed levels.
(encompassing public, household and non-financial corporate debt) decreased in 2022 for the second year in a row. However, debt remains above its already-high pre-pandemic level: total debt fell slightly to 238 percent of global GDP in 2022, which was 9 percentage points higher than in 2019. In US dollar terms, global debt amounted to US$235 trillion, or US$200 billion above its level in 2021.
In addition, while many pandemic- related fiscal support mechanisms have ended, governments have had to respond to food and energy price spikes caused by the war in Ukraine and global supply chain disruptions by providing increased price subsidies. Low-income countries’ debt has also increased significantly Before the pandemic, global debt-to- GDP ratios had been rising for decades. Global public debt has tripled since the mid-1970s to reach 92 percent of global GDP (or just above US$91 trillion) by end-2022. Private debt also tripled to 146 percent of global GDP (or close to US$144 trillion), but over a longer time span between 1960 and 2022. China has played a major role in
Global debt is returning to its rising trend
Despite the economic growth rebound from 2020 and higher-than-expected inflation, public debt has remained stubbornly high, particularly in some sub-Saharan African countries. Large, sustained fiscal deficits and price subsidies are among the reasons for those high public debt levels. Large
1 https://www.imf.org/external/datamapper/datasets/GDD
To date, four countries, all of them in sub-Saharan Africa, have requested a Common Framework
THE COMMON FRAMEWORK FOR DEBT RESTRUCTURING
treatment: Chad, Ethiopia, Ghana and Zambia.
The Common Framework for debt treatment beyond the Debt Service Suspension Initiative 2 (DSSI) (Common Framework) is an initiative endorsed by the G20, together with the Paris Club, to support LICs with unsustainable debt in a coordinated process. The Common Framework considers debt treatment on a case-by-case basis, driven by requests from eligible debtor countries. In response to a request for debt treatment, a creditor
committee is convened. Negotiations are supported by the IMF and the World Bank, including through their Debt Sustainability Analysis. The Common Framework approach aims to address debt solvency problems with a long-term perspective, accompanied by reforms ensuring the future sustainability of public debt and consistent with the parameters of an IMF-supported program. Ensuring the participation of private sector creditors
and other official creditors through the comparability of treatment clause included in the multilateral agreement implies debt treatments are provided on favorable terms.
2 At the start of the pandemic, the World Bank and the IMF urged the G20 to set up the DSSI. Established in May 2020, the DSSI helped countries concentrate their resources on fighting the pandemic and safeguarding the lives and livelihoods of millions of the most vulnerable people. Forty- eight out of 73 eligible countries participated in the initiative before it expired at the end of December 2021. From May 2020 to December 2021, the initiative suspended US$12.9 billion in debt-service payments owed by participating countries to their creditors, according to the latest estimates.
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