Debt Relief in Low-Income Countries
The debt crisis in low-income countries is clearly diverting resources away from public services and health systems.
Before the coronavirus pandemic, debt was already a significant issue. The IMF states that 36 of 70 low-income countries were at high risk of debt distress or already in debt distress and the pandemic then pushed debt levels to new heights. The Debt Service Suspension Initiative (DSSI) was set up during the pandemic to allow countries to concentrate their resources on fighting the pandemic. From May 2020 to December 2021, the initiative suspended $12.9 billion owed in debt-service payments. The G20 called on private creditors to participate but only one did so.
The Common Framework for Debt Treatments beyond the DSSI is an agreement to cooperate on debt treatments for DSSI-eligible countries. It requires the debtor to seek from other creditors, including private creditors, a debt solution at least as favourable as the one agreed under the Common Framework. However, the participation of private creditors is voluntary. As you highlight, the report by the House of Commons International Development Select Committee is calling for a legislative solution to enable the Common Framework to provide a meaningful way to address this.
90% of international bonds owed by countries eligible for the Common Framework are governed by English law. I believe the Government needs to show leadership to ensure ‘vulture’ funds cannot block debt-restructuring processes by simply refusing to come to the table.
The Government’s response to the International Development Committee’s report is now due. I would like it to explain what type of role it plans to take in helping to unlock relief for countries in debt distress and bring creditors to the table. I will be interested to read the response.
Between 1997 and 2010, Britain helped to lift almost 50 million people out of poverty and initiated a huge programme of debt relief. I would now like to see the Government lead a new programme of debt relief.