The debt burden: why ex-post intervention shouldn’t be the default option

By Rodrigo Olivares-Caminal, Professor of Banking and Finance Law at the Centre for Commercial Law Studies, Queen Mary University of London, and Paola Subacchi, Professor of International Economics, Global Policy Institute, Queen Mary University of London

The financial response to the COVID-19 crisis has driven debt building at an unprecedented speed, which has increased the risk of debt distress and the odds of a new debt crisis cycle. Emerging markets and developing economies are most at risk. When the COVID-19 crisis began in February 2020, it demanded extraordinary policy measures to protect lives and provide support to those who had lost their livelihoods. The public debt vulnerabilities for many countries, especially the poorest ones, were already significant at that time, but the subsequent collapse of many economic activities exacerbated the situation. As of 30 April 2021, 29 countries were at high risk of debt distress, and 7 low-income countries had already succumbed to it. Somalia, for example, is currently in debt distress and needs to secure relief to restore debt sustainability.

Emerging markets and developing economies are most at risk because of their exposure to international capital flows and the fact that portions of their debt are issued in hard currencies, namely the US dollar. This leaves them vulnerable to changes in US monetary policy, and so to sudden outflows when risk aversion and international financial volatility are high. Some countries have learned lessons from previous debt crisis cycles – as is evident, for example, in the development of local-currency securities markets which mitigate the risk of foreign-currency borrowing – but such resilience is patchy and far from being systemic.

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Time to accelerate debt relief to finance Africa’s recovery

By Marin Fouéré, Policy Analyst, OECD Development Centre and Daniele Fattibene, Research Fellow at Istituto Affari Internazionali (IAI)

The COVID-19 pandemic continues to take a heavy toll on African economies, home to the fastest growing population in the world. The burden of the crisis adds to the fact that Africa’s per capita real GDP growth over the period 2009-2019 was 1.3% per year, which is half the global average of 2.5%.

Ahead of tomorrow’s Summit on Financing African Economies, gathering African and other world leaders and international organisations, President Emmanuel Macron called for a New Deal for financing Africa’s sustainable recovery through profoundly innovative solutions.

Against this backdrop, on 9 April 2021, the OECD Development Centre and the T20 Co-Chair International Affairs Institute (IAI), engaged in a conversation to inform the G20 process, exploring how it could support African-led initiatives to leverage on new liquidity to mobilise more investment in the continent’s sustainable development.

The Italian G20 Presidency can do more to ensure international debt relief efforts are channelled towards Africa’s sustainable development. As the COVID-19 crisis intensifies pressure on fiscal resources, the international community is exploring ways to address the issue of debt sustainability above the scope of the G20’s Debt Service Suspension Initiative (DSSI) and Common Framework for Debt Treatments beyond the DSSI. These initiatives allow for 73 low-income and Least Developed Countries to request either a temporary suspension of payments or further treatment, from rescheduling to restructuring, of their public debt owed to G20 and Paris Club member countries. Although these initiatives can be considered as a step in the right direction, they will not cover the magnitude of the current crisis.

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Significant but insufficient progress in financial support for developing countries

By José Antonio Ocampo, Professor at Columbia University and former UN Under-Secretary-General for Economic and Social Affairs and Finance Minister of Colombia

Recent events and particularly last week’s meeting of the Bretton Woods institutions have generated significant advances in international financial co-operation, particularly in support of developing countries. The latter is crucial, as a large number of low and middle-income countries continue to be severely affected by the COVID-19 crisis while the economic recovery underway is very uneven, as underscored by the IMF in its World Economic Outlook.

The first good news was the agreement to issue $650 billion dollars in Special Drawing Rights (SDRs), the IMF’s global reserve asset. Close to two-fifths of the new SDRs would engross the reserves of developing countries. It remains to be agreed how the unused SDRs, particularly from developed countries and China, would be lent or donated to special funds to support low-income countries, and there is no agreement on how they could also be used to support middle-income countries.

The second good news was the endorsement by the US of a global effective minimum tax in the context of the negotiations taking place in the OECD Inclusive Framework on BEPS (Base Erosion and Profit Shifting). There is still a need to agree on what the tax rate would be and the criteria for determining the tax base: whether sales, as the US has suggested, as well as other criteria, particularly resource use and employment that would benefit developing countries, as the Independent Commission for the Reform of International Corporate Taxation (ICRICT) has suggested.

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Joe Biden’s chance to renew multilateralism for a green recovery

By Kevin P. Gallagher, Professor and Director of the Global Development Policy Centre at Boston University & Co-chair for the ‘Think 20 Task Force on International Finance’ at the G20 for 2021

This blog is part of a thread looking more specifically at the impacts of the COVID-19 crisis in terms of capital flows and debt in developing countries.

The COVID-19 pandemic triggered the worst economic downturn since the Great Depression. World leaders were quick to convene through the G20 to try and stem the crisis but limited by the dismissal of the process by the United States. Newly elected US President Joseph Biden has just issued a game changing new Executive Order declaring that the United States Treasury shall “develop a strategy for how the voice and vote of the United States can be used in international financial institutions, including the World Bank Group and the International Monetary Fund, to promote financing programmes, economic stimulus packages, and debt relief initiatives that are aligned with and support the goals of the Paris Agreement.”

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La restructuration de la dette en Afrique doit impliquer ses nouveaux créanciers

Par Arthur Minsat, Centre de développement de l’OCDE et Yeo Dossina, Commission de l’Union africaine[i]


Ce blog aborde les impacts de la crise du COVID-19 en matière de flux de capitaux et de dette dans les pays en voie de développement.

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La récession mondiale causée par la pandémie COVID-19 appelle à l’annulation ou à la restructuration de la dette des pays africains. La crise a déclenché un double choc fiscal, avec une hausse des dépenses publiques et une baisse des recettes. Il est essentiel de rétablir la capacité d’emprunt des pays africains pour lutter contre la perte de leur marge de manœuvre budgétaire.

Avant le choc, l’Afrique avait déjà montré des signes de vulnérabilité. Bien que le continent africain se soit illustré par le deuxième taux de croissance économique le plus élevé au monde, avec 4,6 % en moyenne entre 2000 et 2018, sa croissance avait commencé à ralentir, passant d’un pic de 6,8 % en 2012 à 3,2 % en 2019. En 2020, la croissance de l’Afrique devrait se situer entre -2,1 % et -4,9 %, ce qui réduira considérablement la marge de manœuvre budgétaire de tous les pays. Dans l’ensemble, le financement du développement a diminué depuis 2010 en pourcentage par habitant. Tant pour les recettes intérieures que pour les flux financiers extérieurs, le montant du financement par habitant a diminué de 18 % et de 5 % respectivement tout au long de la période 2010-2018. Une économie mondiale moins performante et une croissance démographique toujours élevée dans la plupart des pays africains sont à l’origine de cette tendance à la baisse.

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Ongoing debt restructuring must involve Africa’s new creditors

By Arthur Minsat, OECD Development Centre and Yeo Dossina, African Union Commission[i]


This blog is a part of a thread looking more specifically at the impacts of the COVID-19 crisis in terms of capital flows and debt in developing countries.

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The global recession caused by the COVID-19 pandemic calls for a cancellation or restructuring of African countries’ debt. The crisis has triggered a double fiscal shock of soaring government expenditure and slumping revenues. Restoring African borrowing capacity is essential to fighting a loss of fiscal space.

Prior to the shock, Africa had already shown signs of vulnerability. Although the African continent boasted the world’s second highest economic growth rate at 4.6% on average between 2000 and 2018, it had started to slow down from a peak of 6.8% in 2012 to 3.2% in 2019. In 2020, Africa’s growth is likely to fall between -2.1% and -4.9%, significantly reducing the fiscal space of all countries. Overall, financing for development has dropped since 2010 in per capita terms. For both domestic revenues and external financial inflows, the amount of financing per capita has decreased by 18% and 5% respectively throughout 2010-2018. A less favourable global economy and persistently high demographic growth in most African countries have driven this downward trend.

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The Future of Financing for Development

By Mahmoud Mohieldin, United Nations Special Envoy for the 2030 Agenda, and Benjamin Singer, Economic Affairs Officer, United Nations


This blog is also a part of a thread looking more specifically at the impacts of the COVID-19 crisis in terms of capital flows and debt in developing countries

finance-development-covid-19

Before the pandemic started, developing countries had been increasing their debt levels since the 2000s. By the end of 2019, 44% of IDA-eligible countries were already considered at high risk of or in debt distress. Debt servicing costs of least developed countries (LDCs) and low-income countries increased twofold from 2000 to 2019 to reach 13% of government revenue. A growing proportion of this debt was privately owned, or commercial.

Then the pandemic hit, sending countless public health systems, many already under pressure, into disarray. Up to 1.6 billion livelihoods – half the world’s workforce – have been lost. Health and unemployment benefit expenditures skyrocketed at the same time as the release of some US$9 trillion worth of stimulus packages.

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The G20 and the failure of policy coordination during COVID-19

By Paola Subacchi, Professor of International Economics at Queen Mary University of London’s Global Policy Institute, is the author, most recently of The Cost of Free Money (Yale University Press, 2020)


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


covid-19-coordination-g20When a crisis strikes, it is a time to be bold and do whatever it takes to avoid the worst. The response to the COVID-19 pandemic so far has been surprisingly bold at the national level, but at the international level, it has been disappointing to say the least. The G20 – the “premier forum for international economic co-operation” – has played no significant role in this crisis, or at least not one comparable to the role it played during the global financial crisis. Unlike in 2008, when it led the multilateral policy response, the G20 has attempted neither to coordinate the fiscal response nor to ensure that robust and broad multilateral financial safety nets are in place. It is arguable whether the nature of the current crisis requires the same deployment of financial resources as when the banking and financial systems in many countries seized up. However, the IMF and the World Bank have beefed up their resources to an unprecedented $1 trillion of loans and non-conditional credit lines to help developing countries. The G20, in turn, has agreed on temporary debt relief for low-income countries, but limited the suspension to one year. So far just $5.3 billion in bilateral debt repayments have been suspended, against an expected $11.5 billion – clearly this initiative has fallen short in ambition and scope. Continue reading

Adapting to the new normal: the economic impact of COVID-19 in Central America

By Miguel Angel Medina Fonseca, Economist at Chief Economist Office, Central American Bank for Economic Integration


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


Eve Orea-shutterstock_1716207883
Photo: Eve Orea / Shutterstock

The COVID-19 pandemic is causing one of the largest economic recessions in the world’s history. In Central America, the Central American Bank for Economic Integration foresees a worst case scenario where the region’s GDP will contract by 4.9%, and public debt will increase by at least 7.6 percentage points of GDP.

The COVID-19 pandemic has prompted most governments around the globe to take preventive containment and mitigation measures, often implemented under state of emergency or similar clauses. In Central America, most policies have focused on saving people’s lives and reducing the socio-economic impact of the pandemic. Some measures stand out:
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Moratoire sur la dette des pays africains : tout le monde doit participer !

Par Najat Vallaud-Belkacem, directrice France de l’ONG ONE


Ce blog fait partie d’une série sur la lutte contre le COVID-19 dans les pays en voie de développement. Visitez la page dédiée de l’OCDE pour accéder aux données, analyses et recommandations de l’OCDE sur les impacts sanitaires, économiques, financiers et sociétaux de COVID-19 dans le monde.


NajatAlors que le monde est confronté à une pandémie mondiale d’une ampleur sans précédent depuis des décennies, les pays africains ont un besoin urgent de ressources financières pour répondre à la crise COVID-19 et à ses retombées économiques, sanitaires et sociales. La Banque mondiale estime que le continent connaîtra sa première récession depuis 25 ans. Les experts de la communauté internationale sont donc confrontés à un problème majeur : comment libérer de manière rapide et à grande échelle les financements nécessaires à la lutte contre la pandémie dans les pays les plus pauvres du monde ?

Il apparait aujourd’hui qu’une des meilleures solutions pour libérer rapidement des ressources financières supplémentaires est d’alléger la dette. En effet, le poids de la dette constitue un problème récurrent auquel doivent faire face de nombreux pays africains. A titre d’exemple, la Gambie alloue neuf fois plus de ressources au remboursement de sa dette extérieure qu’à ses dépenses de santé publique. La place qu’occupe le remboursement de la dette au sein des budgets nationaux des pays pauvres est colossale : en 2020, ce sont 22 milliards de dollars du service de la dette qui sont détenus par d’autres gouvernements, 12 milliards de dollars par des bailleurs multilatéraux, et près de 13 milliards de dollars par créanciers privés (investisseurs et banques commerciales). C’est donc un poids financier qui ne pourra être diminué que si tous les créanciers travaillent ensemble à un allègement généralisé des dettes publiques et privées. Continue reading