EDITORIAL - Debt relief needed
HOW do you get developed countries to agree among themselves to assist small states and some poorer ones as well, in tackling their debt woes?
We ask that question against the background of the suggestion made last Monday by Dr. Ngozi Okonjo-Iweala, the former Finance Minister of Nigeria, who put forward the idea while presenting this year’s Sir Winston Scott Memorial Lecture.
She has maintained that low-income countries need help in dealing with their massive debt. The Nigerian official was very upbeat that these countries do not have the resources at their disposal, to handle their debt load, and that as a necessity they ought to be given help by the more powerful and richer countries.
She told her Barbadian audience that when one looks at it, the huge debt facing developing countries was there long before the onset of the COVID-19 pandemic, which so far in 2020 has damaged the economies of the small states.
In some cases debt to GDP ratios average about 200 per cent and with slender resources and economic hardships, these small states need enormous help in confronting this issue. What is more, the situation promises to get worse if conditions are not improved with the help of bigger countries.
While some of the bigger countries have higher debt to GDP ratios they can still manage and in any case they also face more favourable conditions.
High and unsustainable debt can be a major burden to small countries. Even so this causes them to face hurdles in accessing new sources of finance, simply because they do not have the capacity to repay the borrowed funds when they fall due.
With COVID-19 having taken a heavy toll on the economies of these countries, there is a role here for the G20 (industrial countries), the International Monetary Fund, the World Bank, Inter-American Development and other multilateral agencies.
One would recall recently that Dr. Justin Robinson, Acting Director of the Sagicor Cave Hill School of Business, called for multilateral agencies to do more for Barbados and other Caribbean countries which have high debts and since their economies have been hit hit hard by COVID-19. As such, they will have a hard time to deal with their debt.
Many people who follow these issues would recall the Third World debt crisis of the early 1980s and the so-called lost decade, which the international community had characterised the mainly Latin American countries and other indebted Third World nations.
Several Latin American countries were unable to meet their debt repayment schedules, and they said so up front. In fact, they refused to make the loan repayments and subsequently defaulted.
However, eventually they turned to the multilateral agencies like the same IMF, World Bank, and the IDB for help to bail them out of their predicament.
They were also involved in debt rescheduling, debt swaps, and benefited from debt write offs. In some instances they converted part of their debt into equity.
Dr. Okonjo-Iweala is therefore on point in suggesting help from the international community to come to the rescue of the heavily indebted countries.
This must be done in a hurry since developing countries cannot wait much longer.