The world’s poorest countries are on the brink of an unprecedented debt crisis with the likelihood of multibillion-dollar defaults that will cripple the global economy, Oxfam International warned on Wednesday, as it implored Group of 20 (G20) finance ministers to do more to avert an impending catastrophe for hundreds of millions of people.
Oxfam said action from the G20 – the world’s wealthiest nations, whose finance ministers are set to meet this weekend – to stem the coronavirus economic calamity falls far short from what is needed.
“The world’s poorest countries are paying up to $2.8bn in monthly debt payments while the lives and livelihoods of millions of people are at risk,” Jaime Atienza, Oxfam International’s debt policy lead, told Al Jazeera.
In April, the World Bank and the G20 agreed to endorse the Debt Service Suspension Initiative (DSSI) to stave off the pandemic’s impact on the world’s most vulnerable.
Under the initiative, 73 low-income countries became eligible to suspend principal or interest payments on their debts to G20 countries from May 1 through the end of 2020.
So far 41 have applied, potentially saving them up to $9bn in 2020.
But research from Oxfam, Christian Aid and Global Justice Now – titled Passing the Buck on Debt Relief – shows that all 73 countries must still pay up to $2.8bn per month in debt repayments this year.
That amount is double the combined total that Uganda, Malawi and Zambia spend on their annual health budgets.
“Money saved on bilateral debt should not have to go straight to other creditors like rich private banks and bondholders,” said Chema Vera, Oxfam International’s interim executive director.
The 73 countries owe at least $11.6bn to private creditors, $13.8bn to multilateral institutions, and $3.77bn to the World Bank.
Oxfam is urging G20 finance ministers to make the DSSI legally binding to cancel all debt payments, including private and multilateral ones through the end of 2022, and also make it include middle-income countries.
“Private creditors should not be plundering the poorest countries in a pandemic,” Vera said. “The United States and United Kingdom, most of all, should urgently pass new laws to stop their private lenders and predatory vulture funds from gouging developing countries and suing them for defaulting on their debts.”
The world's poorest countries are paying up to $2.8bn in monthly debt payments while the lives and livelihoods of millions of people are at risk.
Safeguarding countries from credit rating agencies that threaten to downgrade their status is critical as well, Oxfam says. Countries like Ghana and Kenya, which could save $354m and $802m respectively in bilateral debt repayments, are fearful of joining the initiative for this reason.
Some middle-income countries have been excluded from current debt-relief efforts.
Oxfam warns this category of countries faces a dire future with huge fiscal spending, plummeting revenues and no ability to borrow to fill this growing gap.
Argentina, Ecuador and Lebanon have already defaulted on debt payments this year.
Argentina failed to pay some $500m in interest on already delayed bond coupons in May. Ecuador in April reached a deal with bondholders to delay $800m in interest payments through August to free up funds to fight the coronavirus pandemic.
Lebanon, whose public debt is more than 170 percent of its gross domestic product, is grappling with persistent power cuts and soaring food prices.
Oxfam is also urging G20 finance ministers to approve an allocation in International Monetary Fund (IMF) Special Drawing Rights (SDR) – an international reserve asset created by the IMF. More SDRs will give countries in need additional financial resources to deal with the destruction wrought by the pandemic.
“Knowing what we do about the global economic crisis – that people are now not just dying from this virus, but from hunger – G20 leaders arguably have a moral obligation to approve a general SDR allocation,” Nadia Daar, Oxfam International’s head of the Washington, DC Office, told Al Jazeera.