Coronavirus hits debt burden of poorest countries, research finds

24 Mar 20

Increased borrowing costs and falling income from commodities amid the coronavirus pandemic are making poor countries’ debt crises even worse, according to the Jubilee Debt Campaign.

Researchers sampled the prices that the bonds of 23 countries are trading at, and found that each of them had increased by an average of 3.5 percentage points since 20 February.

These countries, mostly in Africa but including some in Central Asia and Latin America, are all classified as low or lower-middle income countries, and the average yield for these governments - an indication of the cost of new borrowing - is now 10%.

Alongside this, many revenues that these countries rely on such as from tourism and the sale of raw materials have plummeted.

The Bloomberg commodity price index has fallen by 27% since the start of the year, and is now at its lowest level since 1986.

Since 1 January, the price of oil has fallen by 61%, copper by 21% and coffee by 15%.

According to the IMF, 34 out of 70 countries it assesses are now either in debt default or at ‘high risk’ of being so, up from 17 in 2013.

One such country, Zambia, has debt obligations that already take up 30% of the government’s revenue, and the falling value of copper - its main export - threatens to plunge the country further into crisis.

“Urgent action is needed to support poor countries being hit by the economic impacts of coronavirus, including a complete moratorium on debt payments for those most affected,” said the Jubilee Debt Campaign’s head of policy Tim Jones.

He said the IMF should help governments restructure their existing debt, rather than simply bail countries out, so as to solve their debt problems for the long term.

“Where economic shocks have pushed countries into debt crisis, the IMF needs to help restructure debt with previous lenders,” said Jones.

“Otherwise, its loans will just be used to pay off reckless lenders and maintain the debt crises.”

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