UN warns over global fallout from debt crisis in poor countries
Fears of a fresh debt crisis in developing countries that would send shockwaves through the global financial system have been highlighted by a United Nations report stressing the vulnerability of poor states to falling commodity prices and higher interest rates.
The annual report from the UN conference on trade and development (Unctad) said the benefits of the debt relief provided to some of the world’s poorest countries as a result of the mass public campaigns of the late-90s and early 2000s were “fast evaporating”.
It said a number of countries – mainly in sub-Saharan Africa – had been forced to seek help from the International Monetary Fund and the World Bank, adding that the international community needed to be better prepared to manage a new crisis.
According to the IMF, 36 countries had received financial assistance worth $76bn under the Heavily Indebted Poor Country initiative, but Unctad said rushed attempts to integrate poorer countries into international financial markets after the 2008 global recession had left them vulnerable.
“Easy access to cheap credit in boom times has led to growing debt levels across the developing world. Developing country external debt stocks alone rose from $2.1tn in 2000 to $6.8tn in 2015, while overall debt levels rose by over $31tn between 2000 and 2014, with total debt-to-GDP ratios in many developing countries reaching over 120% and in some emerging economies over 200%.”
Many developing countries borrowed heavily when commodity prices were booming in the years after the 2008 financial crisis, and Unctad said the falling cost of oil, metals and food has made it harder for them to repay their debts. The threat of higher US interest rates after a prolonged period of sluggish growth in the west would add to the problems of the most heavily exposed countries, it said.
“Only a couple of years ago, the amount of debt that low-income developing countries could have sold to eager investors seemed almost limitless. International sovereign bond issuance in these economies rose from a mere $2bn in 2009 to almost $18bn in 2014,” Unctad said.