In accordance with the United Nations Conference on Trade and Development (UNCTAD) report titled “From the Great Lockdown to the Great Meltdown: Developing Country Debt in the Time of Covid-19″, developing countries’ repayments on their public external debt will increase between $2.6 trillion and $3.4 trillion in 2020 and 2021 amid COVID-19 pandemic.
- For high-income developing countries it will rise between $2 trillion and $2.3 trillion while for middle and low-income countries it will mount between $666 billion and $1.06 trillion.
- The report has suggested a “global debt deal”to reduce financial pressure on developing countries due to the coronavirus crisis.
About 3 Step global debt deal
A global debt deal for developing countries comprises three key steps to translate calls for global solidarity into action.
- Automatic temporary standstill: Longer and more comprehensive: Under this, facilitation of effective response is required to tackle Covid-19 through increased health and social expenditure for all crisis-stricken developing countries. It also calls for post-crisis economic recovery along sustainable growth, fiscal and trade balance trajectories.
- Debt relief and programmes restructuring:Restoring long-term debt sustainability: To reassess longer-term developing country debt sustainability on a case-by-case basis. Also, measures to write-off debts need to be more systematic, transparent and coordinated. Already Debt repayment worth $215 million owed by 25 poorest developing nations was cancelled by the International Monetary Fund (IMF) in April 2020. Leaders of G20, too, announced suspension of debt repayments from 73 poor countries for the period from May to December 2020.
- Safeguarding future dealing: Establishment of an “International Developing Country Debt Authority’ (IDCDA): Taking forward steps 1 and 2, on the scale commanded by the impact of the Covid-19 crisis on developing country debt sustainability may thus well require putting into place an “International Developing Country Debt Authority” (IDCDA) mandated to oversee the implementation of comprehensive temporary standstills as well as case-by-case longer-term debt sustainability assessments and consequent sovereign debt relief and restructuring agreements.
-COVID-19 crisis will accelerate record portfolio capital outflows from emerging economies and sharp currency devaluations in developing countries.
-The rupee fell to 76.02 against the dollar on April 24, 2020 from 71.3 on February 12, 2020 resulting in a 6.6% dip in two months.
-United Nations Development Programme (UNDP) estimated the income losses to exceed $220 billion in developing countries.
Actions taken by the UN:
-A multi-partner trust fund for COVID-19 Response and Recovery announced by the UN along with the COVID-19 Solidarity Response Fund by the World Health Organisation (WHO).
-On March 30, UNCTAD announced a $2.5 trillion coronavirus crisis package for developing countries.
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