The transregional sovereign debt situation is a crisis of development that threatens to push the achievement of sustainable development, a just energy transition, and the guarantee of human rights too far into the future.
COVID-19 compelled states to intervene heavily in their national economies to guarantee healthcare and to sustain incomes. Subsidies and direct transfers led to significant debt increases, especially in countries with limited capacity to collect taxes. Now many countries in the Global South face severe social and economic challenges caused by high levels of debt.
More than half of low-income countries now have a high risk of debt distress or are actively in an insolvency or liquidity crisis. At least 45 developing countries spend more on debt interest payments than on health, and 19 spend more on interest than on education. Quality of life and human rights have been compromised. Following the pandemic, the baseline scenario for crisis has shifted. Polycrisis – multiple intersecting crises – is now the new normal, but that is not yet reflected in how debt sustainability is determined.
Economic experts, civil society, trade unions, international organizations, and political decision-makers around the world are all working to find a new international debt management consensus that will relieve the burden on affected countries. Good initiatives abound – sovereign insolvency proceedings, reform of debt sustainability frameworks, even visions of a grand bargain among MDBs, private sector and national governments for debt relief and growth – these and more proposals are on the table. There is no need to reinvent the wheel!
However, a robust and inclusive approach to the problem – one that serves both low-income and middle-income countries, one that addresses the plight of countries facing insolvency as well as those facing illiquidity, one that addresses the complex landscape of lenders, and perhaps most importantly, one that takes not just an economic approach to the problem but that also deals with the complex politics – this kind of solution is not yet within reach.
Countries that find themselves in critical over-indebtedness or even default often face the challenges of such a situation alone. Governments must manage difficult negotiations with the international financial institutions and/or bilateral lenders, on both the private and public side, while at the same time trying to ensure that their citizens still trust in their ability to provide social protection and maintain social cohesion.
With a legally binding international sovereign debt workout mechanism out of reach, the debate on the potential of national legislation to support enforce the equal comparable treatment of creditors has gained new momentum. The aim is to make restructuring negotiations of critically unsustainably indebted states more successful and efficient by preventing uncooperative behavior of creditors. Based on a number of background papers and expert discussions examining experiences in both – creditor and indebted countries – the project is elaborating policy recommendations.
Sara Burke (Project Coordinator)
sburke(at)fesny.org
Lennart Inklaar
linklaar(at)fesny.org
Sarah Ganter
Sarah.Ganter(at)fes.de
Katrien Klüver
Katrien.Kluever(at)fes.de
Imène Cherif, Tunisia
Imene.Cherif(at)fes.de
Thomas Claes (Africa Dep.)
Thomas.Claes(at)fes.de
Abdulla Dayo, Pakistan
Abdullah.Dayo(at)fes.de
Amanuel Desalegne
AU Cooperation, Ethiopia
Amanuel.Desalegne(at)fes.de
Maria Julia Eliosoff, Argentina
MariaJulia.Eliosoff(at)fes.de
Gustavo Endara, Ecuador
gendara(at)fes-ecuador.org
Alexander Geiger
AU Cooperation, Ethiopia
alexander.geiger(at)fes.de
Constantin Groll, Ecuador
cgroll(at)fes-ecuador.org
Martin Güttler, Ghana
Martin.Guettler(at)fes.de
Niels Hegewisch (Asia Dep.)
Niels.Hegewisch(at)fes.de
Hendrik Johannemann
(Asia Dep.)
Hendrik.Johannemann@fes.de
Fritz Kopsieker, Zambia
fritz.kopsieker(at)fes-zambia.org
Martin Mader (Asia Dep.)
Martin.Mader(at)fes.de
Kathrin Meissner, TUCC, South Africa
Kathrin.Meissner(at)fes.de
Salam Said, Tunisia
Salam.Said(at)fes.de
Martin, Matthew
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Hurley, Gail
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Raga, Sherillyn
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Brosio, Magalí
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Rehbein, Kristina
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Shah, Zulfiqar; Rafique, Muhammad
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Rehbein, Kristina
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Rehbein, Kristina
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Ekeruche, Mma Amara
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Soko, Bopelokgale
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