For many low-income countries, the Covid-19 crisis has further damaged already struggling economies. 52 countries are currently experiencing a debt crisis, where the size of debt payments undermines the government’s ability to protect the basic economic and social rights of its citizens. A further 100 plus countries are considered at risk. 2020 saw a huge flight of overseas capital from developing economies.
Since May 2020 the Debt Service Suspension Initiative (DSSI), initiated by the rich G20 countries, with the World Bank and IMF, has postponed debt repayments for some of the poorest countries during the pandemic. Many indebted countries are however choosing not to take part, for fear of this impacting on their sovereign credit rating and therefore the costs of future debt.
There are now widespread calls for a more comprehensive package of debt relief for the poorest and most indebted countries. One possibility is that this could be funded by earmarking the rise in the value of gold reserves over recent years. Innovative proposals have also been put forward to combine debt relief with environmental action, where countries agree to ‘swap’ debt relief for quantifiable commitments to reduce deforestation or enhance conservation.
Special Drawing Rights
It is now widely expected that the International Monetary Fund (IMF) will create $650 billion in new international money to help low-income countries recover out of the pandemic. So-called ‘Special Drawing Rights’ or SDRs (which countries can draw on from the IMF) could help support both vaccination and health care programmes and infrastructure investment – particularly in green projects and ‘nature-based solutions’ – in the global South.
Under current IMF rules SDRs mainly go to richer countries (including China), so this programme will require them to ‘donate’ their allocations back to the IMF to reallocate to poorer ones, particularly in Africa. Many people are now arguing that this redistribution should be written into the IMF’s rules to ensure it is permanent. Others are calling for a larger SDR issuance as part of stronger support for a global green and resilient recovery.
The decision by the UK government at the end of 2020 to go back on its commitment to spend 0.7% of GDP on overseas development assistance – reducing it to 0.5% – has been widely criticised. First achieved in 2013, the UN target was embodied in UK law in 2015.
Of the 43 richer nations counted by the OECD as providing overseas development assistance (ODA) – defined as aid specifically aimed at reducing poverty in low-income countries – only five now provide 0.7% of GDP or more. The World Bank estimates that the Covid-19 crisis pushed around 120 million people around the world into extreme poverty, with almost all governments pushed into higher debt and their development plans severely retarded.
While many are calling for aid to low-income countries to be increased, others argue that the concept of aid from rich to poor nations is outdated, not least because the majority of the world’s poor no longer live in the lowest-income countries. Proponents of the concept of ‘Global Public Investment’ are attempting to forge a new multilateral approach to investing in the Sustainable Development Goals (SDGs) and ending poverty, opening up decision making to include the poor. Calls for a Global Green New Deal also embody this idea.