Crisis deepens as global South debt payments increase by 85%

9 April by Jubilee Debt Campaign


Yaoundé, capital of Cameroon. External government debt payments in Cameroon are 20% of government revenue. Cameroon is receiving IMF bailout loans to help keep making payments. Public spending per person has fallen 20% in two years.

- External debt payments by developing country governments grew by 85%, as a proportion of government revenue, between 2010 and 2018
- For the countries with the highest payments, in two-thirds public spending is falling
- The largest cuts were in Egypt, Cameroon, Angola and Mongolia, all of which are on IMF loan programmes

Figures released by the Jubilee Debt Campaign, based on IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
and World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

databases, show that developing country debt payments increased by 85% between 2010 and 2018.

The new analysis from Jubilee Debt Campaign shows that average government external debt payments across the 124 developing countries for which data is available have increased from 6.6% of government revenue in 2010 to 12.2% of government revenue in 2018, an increase of 85%. This is the highest level since 2004, when such payments were 13.8% of government revenue (see graph below).

This rapid increase comes after a lending boom driven by low global interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
. External loans to developing country governments more than doubled from $191 billion per year in 2008 to $424 billion in 2017 (the latest year with figures available).

Tim Jones, Head of Policy at the Jubilee Debt Campaign said:

  • “The growing debt crisis needs urgent international attention. A vital first step is to require that all loans to governments are publicly disclosed, allowing parliaments, media and civil society to hold governments to account for new borrowing.
  • “In addition, when crises arise, the IMF should stop bailing out reckless lenders, and require debts to be reduced instead, so that the costs of crises are shared between borrower and lender. All too often, the lenders who helped to cause the crisis are bailed out, while all the costs of irresponsible lending are born by people in the borrowing country.
  • “There is now evidence of falling public spending in countries hit by high debt payments, further undermining progress towards the Sustainable Development Goals.”


Graph. Average (mean, unweighted) external debt payments for developing country governments, 2000 – 2018

Jubilee Debt Campaign has also calculated that in the 15 countries with the highest debt payments, in ten of them public spending per person fell between 2016 and 2018. Across the 15, public spending fell by an average of 4%. The largest cuts were in Egypt, Cameroon, Angola and Mongolia, all of which are on IMF loan programmes.

In contrast, of the 15 countries with the lowest debt payments, in just two did public spending per person fall between 2016 and 2018. On average across these 15, public spending increased by 11%.

The growing debt crisis will be a key discussion at the IMF and World Bank Spring Meetings in Washington DC from 9-14 April, and the G20 G20 The Group of Twenty (G20 or G-20) is a group made up of nineteen countries and the European Union whose ministers, central-bank directors and heads of state meet regularly. It was created in 1999 after the series of financial crises in the 1990s. Its aim is to encourage international consultation on the principle of broadening dialogue in keeping with the growing economic importance of a certain number of countries. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, USA, UK and the European Union (represented by the presidents of the Council and of the European Central Bank). Finance Ministers meeting 8-9 June in Japan.

The fall in global commodity prices in mid-2014 reduced the income of many governments reliant on commodity exports for earnings. This also caused exchange rates to fall against the US dollar, which increases the relative size of debt payments as external debts tend to be owed in dollars. In recent years rising US interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rates have further increased the interest costs of debt and caused further devaluations of currencies against the dollar.


Further information

The full figures for all 124 countries are available here.

The average figure is a mean unweighted average. The median unweighted average has increased by 96% between 2010 and 2018, indicating that the mean increase is a general trend across countries rather than due to particular outliers.

Where they are available, the figures for government external debt payments as a proportion of revenue come from IMF and World Bank Debt Sustainability Assessments conducted for individual countries since the start of 2018. In total these cover 48 countries.

For the other 76 countries, figures for government external debt payments are from the World Bank’s International Debt Statistics 2019 and figures for government revenue are calculated from the IMF’s World Economic Outlook Database, October 2018.

The figures on public spending cuts are for countries with the highest debt payments, with information available from the IMF on public spending. The figures for the 15 countries are:

CountryExternal government debt Government debt The total outstanding debt of the State, local authorities, publicly owned companies and organs of social security. payments in 2018 as a percentage of revenueChange in government spending per person, in 2016 prices, from 2016 to 2018Currently on an IMF lending programme
Angola 57% -19% Yes
Ghana 56% -4% Yes
Bhutan 39% +11% No
Sri Lanka 35% +1% Yes
Egypt 30% -23% Yes
Tunisia 28% +4% Yes
Mongolia 27% -14% Yes
Gambia 26% -3% No [On an IMF programme with no loans]
Mozambique 25% -5% No
Jamaica 24% +17% Yes
Georgia 24% +9% Yes
Belize 24% -10% No
Chad 20% -8% Yes
Senegal 20% -1% No
Cameroon 20% -20% Yes
Average: -4%

Other governments with external debt payments over 20% of revenue, but with no comparable figures from the IMF on public spending, are: Venezuela (63%), Lebanon (36%), Maldives (23%), South Sudan (21%), Sudan (21%), Yemen (21%), Costa Rica (20%).

The figures are for countries with the lowest debt payments with information available from the IMF on public spending. The figures for the 15 countries are:

CountryExternal government debt payments in 2018 as a percentage of revenueChange in government spending per person, in 2016 prices, from 2016 to 2018Currently on an IMF lending programme
Timor-Leste 0% +8% No
Kiribati 1% +23% No
Afghanistan 2% +10% Yes
Solomon Islands 2% +9% No
India 2% +12% No
Papua New Guinea 3% -8% No
Nepal 3% +40% No
Guinea-Bissau 4% 0% Yes
Benin 4% -18% Yes
Kosovo 4% +12% No
Nigeria 4% +29% No
Mali 4% +10% No
Philippines 4% +16% No
Uzbekistan 4% +14% No
Bolivia 5% +8% No
Average: +11%


cadtm.org

Other articles in English by Jubilee Debt Campaign (37)

0 | 10 | 20 | 30

CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

35 rue Fabry
4000 - Liège- Belgique

00324 226 62 85
info@cadtm.org

cadtm.org