Low-income countries grapple with soaring debt, face critical economic challenges.
By Darius Spearman (africanelements)
Low-income countries are facing a daunting challenge as they grapple with escalating debt servicing costs. Despite no recent major requests for comprehensive debt relief since Ghana’s over a year ago, these nations continue to struggle under the weight of their financial obligations. In 2023, low-income economies paid an estimated $74 billion in external debt, a steep increase from the previous year, highlighting the severity of their plight (World Bank).
Higher government borrowing and deficits, primarily to mitigate the impacts of the pandemic, have significantly increased the level of debt. Central banks have raised borrowing costs to combat inflation, further exacerbating these challenges (IMF). The financial climate remains unstable, marked by volatile market conditions and uncertainty about future rate cuts.
Furthermore, these countries have increasingly turned to private sector borrowing. Approximately one-third of their financing in the last decade came from private creditors, up from one-fifth in the previous decade (African Eye Report). This shift reflects a slowdown in financing from multilateral development banks and official development assistance agencies, increasing both financing costs and vulnerability to global financial shocks.
To avoid a costly debt crisis, countries like Angola, The Gambia, Nigeria, and Zambia have implemented reforms such as significant energy subsidy reforms, creating space for development spending (IMF). However, many countries are still lagging in efforts to increase revenues through measures like broadening the tax base and enhancing tax administration efficiency.
The International Monetary Fund (IMF) and other multilateral development banks are playing a key role in helping these countries bridge financing gaps and strengthen policy frameworks. Nevertheless, the effectiveness and speed of debt relief mechanisms like the Group of Twenty’s Common Framework, intended to provide temporary liquidity relief, require further improvement to be truly effective (IMF).
In conclusion, while there have been no notable recent requests for comprehensive debt relief, low-income countries face a precarious economic situation. High debt servicing costs and the need for effective policy reforms and international support remain pressing issues. This situation demands continued attention and action to prevent a further escalation of debt vulnerabilities, underscoring the critical need for global economic cooperation and support.
About the author:
Darius Spearman is a Professor of Black Studies at San Diego City College, where he has been pursuing his love of teaching since 2007. He is the author of several books, including Between The Color Lines: A History of African Americans on the California Frontier Through 1890. See more black news and history content at africanelements.org.