Address debt trap politically, Jubilee Germany advises Zambia
By Staff Reporter
A Germany-based worldwide debt monitoring think-tank says Zambia is one of the 119 countries in the global south which are currently in a debt trap that will persist if not addressed politically.
According to the latest Global Sovereign Debt Monitor Report by Jubilee Germany, the total debt of all low-and middle-income countries worldwide is US$6.877 trillion and that the austerity measures that highly-indebted countries like Zambia have to introduce in order to meet the external debt servicing obligations, greatly affect the poorest due to painful cuts on the budgetary support to social services.
“Currently, 119 countries in the Global South are critically in debt. The debt trend continues: in 87 of these countries, the situation has worsened in the last four years. 13 countries have ceased payments to creditors; the debt crisis is here,” the report reads. “Currently, 119 out of a total 141 countries examined are critically in debt…A debt level is considered critical when the value of at least one debt indicator is in the lowest level of the three-level risk scale or when the International Monetary Fund (IMF) has confirmed that there is at least a ‘moderate’ risk of debt distress in its most recent debt sustainability analysis. Countries with particularly high debt indicators include Jamaica, Mongolia, Bhutan and Mozambique.”
Jubilee Germany observed that the most dramatic outcome of the debt crisis, which has been worsening for years, was that a wide range of countries have now had to cease all or part of their debt servicing.
“Instead of continuing to issue warnings that a new wave of debt crises is looming in the Global South, it has to be said that the crisis is already here,” the report read in part. “Most worryingly, eleven countries have been added which have had to cease payments to external creditors since 2015, either temporarily or permanently, as a result of external shocks and/or political instability. Currently, Venezuela, Angola, South Sudan, Chad and Mozambique are in this position. The first four became insolvent mainly as a result of the fall in oil prices.”
The report further analysed that patterns of over-indebtedness show that countries that are politically unstable and therefore constrained in their ability to borrow responsibly, are vulnerable when it comes to this critical debt ranking.
“Countries that pursue an extractivist development model and after a fall in commodity prices, face the choice of significantly limiting public spending or financing the resulting budgetary gaps through loans,” Jubilee Germany persisted in its analysis. “Unless it is addressed politically, the crisis will persist and even worsen, not least thanks to initiatives to promote private capital investments.”
They pointed out that over-indebtedness was not only a problem when it comes to the suspension of debt service payments.
“Experience shows that governments often keep up with their debt service obligations even though the resources are badly needed in the country. For the people in the affected countries, this often means painful cuts in social services. For example, public healthcare and public education provision may deteriorate; meaning only those can pay can access quality services. It is often the poorest who suffer disproportionately from such austerity,” stated Jubilee Germany. “The so-called ‘Third World Debt Crisis’ of the 1980s and 1990s has shown that it is cheaper for all parties to reduce debt early on, because financing debt service with new (multilateral) credit amounts to the proverbial extinguishing a fire using petrol.”