- The UN has said that the 54 debt-vulnerable nations account for more than half of the world’s population, but constitute less than three percent of the global Gross Domestic Product (GDP). As per a new UN report, 46 of the 54 countries have accrued public debt totaling $782 billion in 2020.
Sri Lanka and Pakistan have figured in the list of 54 low and middle-income nations which are “debt vulnerable” and in urgent need of relief from creditors, the United Nations Development Programme (UNDP) warned in a new paper released in Geneva.
t also underlined that 26 of the developing economies have debt levels that are considered either “substantial risk, extremely speculative or in default”. At the beginning of 2020, only 10 countries fell in either of the three categories.
The UN paper noted that the “investors’ appetite” in these countries has been decreasing, with cumulative outflows from emerging markets being $50 billion, as per the statistics reported by the International Monetary Fund (IMF) in August this year.
The paper suggested that the way out of the debt crisis facing emerging economies would involve better creditor coordination under the G-20 Common Framework (CF) among Paris Club and non-Paris Club nations, particularly China. The Paris Club is an informal group comprising officials from 23 advanced economies or creditor nations.
UNDP chief Achim Steiner said that providing debt relief would be a “small pill to swallow” for the wealthy creditor nations.
- Cases of Sri Lanka & Pakistan
Sri Lanka has been facing its worst economic crisis in over seven decades, spurred by a balance of payments (BoPs) crisis caused by depleting foreign exchange reserves. The country defaulted on its foreign debt repayments in April.
The economic crisis has also resulted in the government being unable to pay for essential food and fuel imports, thus triggering runaway inflation which topped 70 per cent in August.
While the Sri Lankan government last month sealed a staff-level agreement with the IMF for a $2.9 billion bailout package, the disbursement of funds under the deal is contingent upon Sri Lanka’s foreign creditors agreeing to restructure the foreign debt.
The Sri Lankan government is currently involved in efforts to convene a creditors’ conference of Paris Club and non-Paris Club nations to reach a consensus on restructuring of foreign debt.
The new UNDP paper noted that Colombo’s foreign currency (FC) denominated bond debt was trading at a historic low of 27 cents to the dollar as a result of the economic crisis.
In the case of Pakistan, the UN agency has expressed concern over the downgrading of its average credit rating to 6 (highly speculative) this year. The gross public debt of Pakistan is 74 per cent of the country’s Gross Domestic Product (GDP).
Further, the paper said that six per cent of Pakistan’s population has been living in “extreme poverty” and the country ranks 147 among 182 countries on ‘climate change vulnerability’.
Pakistan has also been facing a situation of depleting forex reserves and unprecedented inflation, which reached 27 per cent in August. Pakistan’s Prime Minister Shehbaz Sharif warned last month that the government was in urgent need of “debt relief” as overall damages caused by floods crossed $30 billion.