| 26 May 2024, Sunday |

COVID-19 worsens debt crisis, 35 to 40 countries are ‘debt distressed’: Report

As the pandemic compounds already high levels of debt, a new report has revealed that more than 100 countries face cuts to public spending on health, education and social protection.

The International Monetary Fund believes that 35 to 40 countries are “debt distressed”. This means that a country is experiencing difficulties in servicing its debt, such as when there are arrears or debt restructuring.

However, the study says that this figure is a “gross underestimation”.

Countries falling into debt distress include Tunisia, Zambia and Ghana, said Faiza Shaheen, lead author of the report.

“We compiled a list of countries that are labelled as debt-distressed across a number of criteria, and estimate around 100 countries will have to reduce budget deficits in this period, even though the majority are still facing the third or fourth wave of the [Covid-19] pandemic,” the report said.

It added, “Furthermore, the ability to cancel this debt is complicated because many of these countries have taken on debt under non-concessional terms from private lenders. The trends in [the UN’s] Financing for Development (FFD) were entirely insufficient to meet the SDGs [sustainable development goals] even prior to Covid-19. Now there is a full-blown crisis.”

The researchers used a variety of indicators to identify countries deemed vulnerable due to rising levels of debts.

These indicators included their debt-to-GDP ratio, their debt-to-export ratio, as well as countries labelled as fiscally vulnerable by the UN Development Programme.

The country’s credit rating and growth trajectory were compared with its debt-service burden.