Too much debt service
The world’s poorest countries are using more and more of their domestic revenue to pay down foreign debt, according to new findings released by the Jubilee Debt Campaign ahead of this week’s IMF meetings.
Why it matters: Jubilee examined the lowest-income nations, defined by the World Bank as having a gross national income per capita of $995 or less. They found that when debt payments rose, public spending per person fell. The last time more debt service was this high among low-income countries was in 2004 — before the IMF, the World Bank and the African Development Fund launched a debt relief program for the most indebted countries.
What's happening: Per the World’s Bank count, 11 low-income economies are in debt distress or at a high risk of debt distress, up from 6 in 2015.
- "The problem is not enough responsibility is required of lenders. Lenders are able to lend money in secret and then if a country is in debt crisis they normally expect to be bailed out by the IMF," says Tim Jones, head of policy at the Jubilee Debt Campaign.
One example: Mozambique, already in default on about $2 billion of external commercial debt thanks to the tuna bonds scandal, put 25% of its government revenue toward debt payments last year. That's nearly triple the equivalent number in 2017.
- The IMF suspended lending to Mozambique in 2016, but is considering emergency financial assistance after a deadly, destructive cyclone ripped through the country.
- UNICEF projected that Mozambique's debt payments in 2018 were higher than the amount it spent on agriculture, water, sanitation, hygiene, the judicial system, transport, communications, social action and job creation — combined.