The Catholic Pontiff, Pope Francis, has called on the International Monetary Fund (IMF) and the World Bank to cut the debt burden of poor countries hit by the economic impact of the COVID-19 pandemic and give their governments a greater say in global decision-making. The Pope, who made the demand in a letter to the participants of the IMF and World Bank’s annual spring meeting, argued that the pandemic had forced the world to come to terms with interrelated socio-economic, ecological, and political crises.
He also noted that a spirit of global solidarity demands at least a significant reduction in the debt burden of the poorest nations, which has been exacerbated by the pandemic.
“The notion of recovery cannot be content to a return to an unequal and unsustainable model of economic and social life, where a tiny minority of the world’s population owns half of its wealth,” the Pontiff said in the letter to the world bodies. He called for a new global plan that necessarily means giving poorer and less developed nations an effective share in decision-making and facilitating access to the international market.
The Pope’s advocacy came on the heels of the resolution by the 20 world’s largest economies to extend a suspension of debt servicing costs for developing countries. However, the measure fell short of cancelling debt or expanding debt relief to the poorer nations.
The Pontiff’s intervention is timely and a step in the right direction. If granted, it would ensure huge relief to the affected countries, especially in African. Across the world, COVID-19 pandemic has ravaged economies and government revenues. For many sub-Saharan African nations, that has tipped the delicate balance of debt. African businesses and households are already suffering liquidity challenges caused by the pandemic.
Data from the World Bank’s October 2020 International Debt Statistics report and the IMF’s World Economic Outlook had projected problematic repayment schedules across the region in the next decade.
Most of the countries burdened by debt are heavily dependent on commodities for export earnings, with oil as the biggest source of foreign exchange. The unstable prices of oil in the international market have thrown these economies into immense stress. World Bank had in fact, predicted that sub-Saharan Africa will fall into its first recession in 25 years as a consequence of the COVID-19 outbreak.
It is good that the IMF and World Bank had earlier in the year collaborated with G20 nations to establish the Debt Service Suspension Initiative (DSSI), making 73 low- to middle-income countries eligible for a suspension of bilateral debt service obligations through June 2021. The initiative is commendable but it only postpones payments.
What the poor countries need is outright debt cancellation. Corruption, resource mismanagement and poor leadership are among the reasons for the debt challenge by the poor nations. Unfair and unequal business practices by the creditor nations also contribute to their rising debt profile.
Trade relations between the rich and poor countries should be conducted in equal and sustainable manner that does not leave the developing countries shortchanged.
We welcome the call by the Pope to cut the debts of poorer nations, especially as some of the debts are controversial and are already bad debts. It even makes sense to cancel them.
However, leaders of the affected countries should not see the intervention by the Pontiff as a reason for not honouring the debts contracted. We believe that whatever financial obligations or debts entered into should be honoured by the debtor nations. Nothing should serve as an excuse for not fulfilling the obligations they freely entered into. We enjoin that all loans should be tied to specific projects which will have the capacity to generate enough revenue to pay back the debts. Poor countries should not expect debt forgiveness as a matter of right or self-entitlement. To guard against future indebtedness, the affected countries should prioritise their spending, avoid unsustainable and worthless projects. The countries, which are heavily dependent on oil as major source of revenue, should diversify their economies. Let their leaders avoid mortgaging the future of their people through binge borrowing.