The pandemic has caused a collapse in tourist and service industry revenue
The World Bank reported this week on the looming debt crisis for Low-Income Countries (LICs). LICs face a $10.9 billion increase in debt repayments, following the economic crisis that has accompanied the Covid-19 pandemic. The report stated that LICs must repay an estimated $35bn to official bilateral and private-sector lenders during 2022, a 45% increase from 2020.
The debt crisis has long been predicted. The collapse in tourism and revenues from the service sector caused by the pandemic hit poor countries more than most. Stalked by the fear of downgrades in their credit-ratings and higher borrowing costs, many LICs were reluctant to adopt the Covid loans offered by multilateral lending institutions. Debt suspension initiatives sought to postpone about $20bn owed by 73 countries to bilateral lenders between May and December 2020. Yet in the end, just 42 countries received relief totalling $12.7bn.
As borrowing costs impact the ability of countries to secure basic goods and services, the impact on daily life is immense. Talk of unsustainable increases in the cost of basic foods is rife in poor countries; while there has been much discussion of the cost-of-living crisis in Western countries, it is the Global Poor who will suffer the most in 2022.
The impact of this crisis is being felt everywhere. In Sri Lanka, a report last week suggested that half a million people had sunk into poverty, while in Ghana, an economist warned that the country’s economy was on the brink of collapse. In Nigeria, meanwhile, there has been a huge spike in the cost of basic foods thanks to a tripling of the country’s debt since President Buhari took office in 2015.
While there’s no doubt that the levels of debt were already concerning prior to 2020, the response to the pandemic has pushed things to breaking point. Hunger, protest, and associated assaults on public health are likely outcomes. Indeed, this has already begun; as one commentator put it, the past two years of public health policy in Africa having “centred on reducing healthcare access, reducing services for pregnant women and children, and promotion of malnutrition”.
What can be done to address this? In the long-term, developing local credit systems which bypass global institutions is a necessary step. In the short term, in a context where the wealth of the world’s ten richest men has doubled over the past two years, a global wealth tax on pandemic profits must be considered — at the very least, ignoring their policy advice may be the best place to start reversing the appalling explosion of inequalities which has taken place at the same time.
Toby Green’s book The Covid Consensus: The New Politics of Global Inequality is published by Hurst.