The economy has seen better days as the struggle goes beyond individual borders, declaring global debt distress. COVID-19 aftermath left many countries in financial distress, and the inflation and climbing interest rates have only dug them deeper in debt. Many countries are struggling to meet, let alone keep up with their financial obligations. As a result, more than 40 countries cannot repay their interest on loans taken. According to the Institution of International Finance, the 226 trillion global debt recorded in 2020 has risen by more than 256% of GDP. Debt from one country ranges; however, records show amounts from tens of millions to billions.
Who Is Having It Worse?
A meeting held in Washington in early October between the World Bank and IMF considered 20 out of the 40 countries with the highest level of public debt. These countries(G20) are deep into the debt crisis, experiencing a shortage of fuel and food prices due to the rising interest rate and high dollar prices. Countries in South Asia and North America are having the worst of the experience as they battle high food prices, structural weaknesses and budget deficits. These countries have accumulated large debt loans as they take out more loans while unable to make interest payments.
Among these countries is Sri Lanka, once predicted as a rising star in the world economy, which has fallen on hard times. With limited reserves, the country struggles to meet its budget. Two countries in North Africa, Egypt and Tunisia, have missed their debt repayments as food prices and high-interest rates spike, respectively. In the East of Africa, Kenya is shaking under the weight of the large debt load as oil and food prices remain high.
How Is The Future Looking?
With International market bonds and Chinese lending no longer reliable, countries have no other loan options. They are turning to multilateral creditors like the World Bank and the IMF for a financial lifeline. This move comes at strict costs to cut public spending and financial unrest among the public. An extreme case is when angry citizens invaded the presidential palace in Sri Lanka when unable to access their basic needs. The UNDP chief administrator, Carmen Reinhart, says that as countries continue stretching their finances, ‘There are more Sri Lankas on the way.’ Many countries feel the pressure, and without being set on the path to debt repayment, it is only a matter of time before they are driven off the cliff,
Final Thoughts
As sobering statistics show, more borrowing lies ahead, as 60% of low-income countries are in debt distress. Financial experts hope creditors and governments will turn away from traditional debt rescheduling and focus on comprehensive restructuring. Additionally, countries should find ways to cut their spending and pay off their loans if they will bring their finances under control. Looking at both angles of creditor and debtor, it is clear there are no winners or losers in the international debt crisis. If we avoid a repeat of the 1980s global recession, both parties should work collaboratively towards financial growth and development progress.