2023-06-22 17:34:29
On June 22 and 23, the French capital, Paris, will host a summit for a new global financial compact, in which it seeks to enhance cooperation between countries in facing climate change and global crises, as well as discussing the debt crisis, innovative financing, and international taxation.
As Paris Club creditors meet in the French capital on Wednesday, on the eve of a “new global fiscal pact” summit, Agence France-Presse provides an overview of the problem.
1- Failure to pay
A study conducted by the United Nations Development Program in February showed that 52 countries, including Ethiopia, Ghana, Pakistan, Sri Lanka, Tunisia and Zambia, were highly indebted and at risk of default. Half of them spend 20% of their budget on paying interest on their debts.
Among the developing or emerging countries that had the highest debt in 2021 relative to their GDP were Venezuela (240.5%), Sudan (181.9%), Eritrea (176.2%), Lebanon (150.6%) and Cape Verde ( 142.3%, Suriname (125.7%) and the Maldives (124.8%), according to the International Monetary Fund figures cited in this report.
2- The highest indebtedness
Over the past decade, the indebtedness of developing countries has more than doubled, reaching $9,000 billion in 2021, and will undoubtedly increase in 2022, according to the World Bank’s annual report on international debt published in December.
The reasons are multiple: the depreciation of its currency against the dollar while its debts are often priced in dollars, and the high rates and prices of energy, food and fertilizers, all of which lead to drying up of its foreign currency reserves.
In absolute terms, the developing or emerging countries that had the highest debt in 2021 were Argentina ($114.8 billion), Pakistan ($94.7 billion), Angola ($46.7 billion), and Ukraine ($44.6 billion). ) and Ecuador ($38.7 billion), according to the World Bank.
3- China: Africa’s main lender
The Paris Club, an informal group founded in 1956, is responsible for finding solutions to the debt repayment difficulties faced by weak countries. It brings together 22 countries, including Germany, France, Italy, Japan, the United States, the United Kingdom and Brazil.
Also among the “historic” creditors are two major international financial institutions established in 1944: the International Monetary Fund and the World Bank. But the World Bank noted in December that the debt of the poorest countries is now in the hands of the private sector.
The London Club, which was established in the mid-seventies, is an informal group of private creditors (banks and investment funds).
In recent years, new creditors have gained increasing importance, particularly China, India and the Gulf states. Thus, China has become the main creditor for many African countries.
4- Debt restructuring or cancellation
When a country can no longer pay its debts, it risks being cut off from access to credit by international financial institutions or private investors. In order to be able to borrow again, this country must reach an agreement with its creditors to restructure its debts, often at the expense of an obligation to reduce its expenditures.
During the COVID-19 pandemic, the Paris Club and the G20 offered debt deferrals to poor countries, and at the same time, they agreed on a “common framework” aimed at restructuring or even canceling the debts of countries that request it. But China in particular has obstructed its implementation. The Paris Club hopes to propose Zambia’s debt restructuring this week, according to an inside source.
5- Postponement of sustainable development projects due to the financial crisis
Clemence Landers of the Center for Global Development told AFP that these countries “are having difficulty bearing the cost of their debt and finding the necessary resources for infrastructure projects or projects related to climate change, at the same time.”
The High Level Panel of Experts on Sustainable Financing estimates the investment needs for developing countries to be between $2,000 and $2,800 billion annually by 2030 (excluding China).
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