Developing country debt payments increase by 60% in three years

22 March by Jubilee Debt Campaign


(CC - Flickr - Rachel Docherty)

Figures released today by the Jubilee Debt Campaign, based on IMF and World Bank databases, show that developing country debt payments increased by 60% between 2014 and 2017. They are now at the highest level since 2004.

- Government external debt payments reach highest level since 2004 following lending boom and commodity price falls in recent years
- Figures released before US Federal Reserve FED
Federal Reserve
Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank : http://www.federalreserve.gov/
meeting where further 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.
rises are expected, which will push debt payments higher

The new analysis from Jubilee Debt Campaign shows that average government external debt payments across the 126 developing countries for which data is available have increased from 6.7% of government revenue in 2014 to 10.7% of government revenue in 2017, an increase of 60%. This is the highest level since 2004, when such payments were 12.6% of government revenue (see graph below).

This rapid increase comes after a lending boom due to global 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 being low. External loans to developing country governments almost doubled from $200 billion per year in 2008 to $390 billion in 2014. They have since fallen back to between $300-350 billion per year from 2015-2017, but this is still well above levels seen prior to the global financial crisis.

The fall in global commodity prices in mid-2014 has reduced the income of many governments which are reliant on commodity exports for earnings. They 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.

Tim Jones, economist at the Jubilee Debt Campaign, said:

“Debt payments for many countries have risen rapidly as a result of a lending boom and fall in commodity prices. The situation may worsen further as US dollar interest rates rise, and as other central banks reduce monetary stimulus. Debt payments are reducing government budgets when more spending is needed to meet the Sustainable Development Goals

“Where there are debt crises, the risk is that the 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
will bail out reckless lenders, and the debt will remain with the country concerned. Instead, reckless lenders need to be made to bear some of the costs of economic shocks through lower debt payments, allowing governments to maintain spending on essential services.”

Countries with the highest debt payments in 2017 include:
- Commodity producers which have been hit by price falls, including Ghana, Mozambique, Angola, Chad, Gabon and Laos
- Countries which are paying debts contracted by previous dictators, including Gambia and Tunisia
- Countries which have had high debts for many years, sometimes decades, but have never been allowed into debt relief schemes, including Lebanon, Jamaica, Grenada and Sri Lanka

Developing country external debt payments fell between 2000 and 2010 because of rising prices of commodity exports and the Heavily Indebted Poor Countries Heavily Indebted Poor Countries
HIPC
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia.
Initiative, which cancelled almost $130 billion of debts owed to governments and multilateral institutions for 36 low and lower middle-income countries.

The IMF say that of 67 impoverished countries they assess, 30 are now in debt distress or at high risk of being so. This has doubled from 15 in 2013 (see graph below).


Further detail and references

The twenty countries with the highest debt payments in 2016 were:

CountryExternal government debt Government debt The total outstanding debt of the State, local authorities, publicly owned companies and organs of social security. payments as a proportion of revenue in 2017Particular issuesRecipient of HIPC debt relief
Angola 55.4% Oil exporter No
Lebanon 44.1% Ongoing debt crisis, Syrian refugees No
Ghana 42.4% Oil and gold exporter Yes
Chad 39.7% Oil exporter Yes
Bhutan 34% Small state, large debts linked to hydropower No
Gabon 26.9% Oil exporter No
Tunisia 26.7% Inherited dictator debts No
Jamaica 26% Small state, high debt for many years but no meaningful cancellation No
Grenada 25% Small state, high debt since hurricanes in 2004 and 2005 No
Sri Lanka 24.5% High debt for many years but no meaningful cancellation No
Georgia 22.7% Conflict No
Gambia 21.8% Inherited dictator debts Yes
Mozambique 21.7% Metals and fossil fuels exporter (NB. High payments even though in default on secret debts) Yes
Belize 21.4% Ongoing debt crisis No
Lao PDR 19.4% Metals exporter No
Djibouti 17.8% / No
Venezuela 17.4% Oil exporter No
Pakistan 16.8% Ongoing debt crisis No
Yemen 15.8% War Yes
St Vincent 15.6% Ongoing debt crisis, climate change No

The full figures for all 126 countries are available here.

The average figure is a mean unweighted average. The median unweighted average has increased by 75% between 2014 and 2017, from 4.9% of government revenue to 7.9%, indicating that the mean increase is a general trend 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. In total these cover 60 countries.

For the other 65 countries, figures for government external debt payments are from the 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.

’s International Debt Statistics 2018 and figures for government revenue are calculated from the IMF’s World Economic Outlook Database, October 2017.

TheIMF’s commodity price index fell from 185 in June 2014 to a low of 83 in January 2016. It has since increased to 106 as of June 2017 (the most recent date available from the IMF), but this is still 42% below levels in mid-2014.

Since mid-2014 there have been, for example, the following falls in currency against the US dollar:
- Angolan kwanza: down 54%
- Mozambique metical: down 52%
- Zambian kwacha: down 37%
- Ghanaian cedi: down 29%
- Tunisian dinar: down 29%

Annual external loans disbursed to low and middle-income country governments have increased from $202 billion in 2008 to $390 billion in 2014. For 2015-2017, disbursements have been $332 billion, $347 billion and $332 billion. Source:World Bank World Development Indicators database.



Source: Jubilee Debt

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