Fears grow that US action on inflation will trigger debt crisis
Fears are growing that action by the US central bank to combat high inflation will trigger a fresh debt crisis, as it emerged poor country repayments to creditors are already running at their highest level in two decades.
The Jubilee Debt Campaign said developing country debt payments had more than doubled since 2010 and were likely to increase further if, as expected, the Federal Reserve pushed up interest rates.
Urging deeper debt relief, the JDC said payments to creditors already accounted for 14.3% of poor-country government revenue in 2021, up from 6.8% in 2010 and the highest level since 2001.
Many poor countries have borrowed in US dollars, exposing them to the dual risk of higher borrowing costs and a weakening of their currencies against the greenback.
Both the World Bank and the International Monetary Fund have called for more more comprehensive relief. Of the external debt payments by low and lower middle-income governments, 47% are to private lenders, 27% to multilateral institutions such as the Bank and the IMF, 12% to China and 14% to governments other than China.
Heidi Chow, executive director of Jubilee Debt Campaign, said: “The debt crisis has already stripped countries of the resources needed to tackle the climate emergency and the continued disruption from Covid, while rising interest rates threaten to sink countries in even more debt.”
The campaign group’s latest analysis found 54 countries were in debt crisis, defined as a situation where payments undermined the ability of a government to protect the basic economic and social rights of its citizens. Kenya and Malawi were among the countries which have been added to the list of countries in crisis, it added.
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