Interest rate hikes from the U.S. Federal Reserve and other central banks are likely to worsen a global debt crisis, particularly for developing countries like Nigeria
This is according to a new report from U.K. non-profit organisation, Jubilee Debt Campaign, titled, ”Growing global debt crisis to worsen with interest rate rises.”
The Federal Open Market Committee will meet this week to decide on the next steps in tightening monetary policy in an effort to keep inflation under control. Some analysts predict that in 2022, the US central bank will raise rates from their pandemic-era lows.
What the report is saying
In a report published on Sunday, the Jubilee Debt Campaign highlighted that developing countries’ debt payments rose 120% between 2010 and 2021, and are currently at their highest since 2001.
The average portion of government revenues channelled toward external debt payments increased from 6.8% in 2010 to 14.3% in 2021, with payments shooting up in 2020.
The report stated that sharp increase in debt payments is hindering countries’ economic recovery from the pandemic and rising U.S. and global interest rates in 2022 could exacerbate the problem for many lower-income countries.
“High debt payments are preventing many countries from tackling and recovering from the Covid pandemic. Rising US and global interest rates in 2022 could further intensify the debt crisis many lower income countries are facing,” the report said.
Heidi Chow, Executive Director of Jubilee Debt Campaign, said significant actions need to be taken to rectify the debt crises in developing countries. He said, “The debt crisis continues to engulf lower income countries, with no end in sight unless there is urgent action on debt relief. The debt crisis has already stripped countries of the resources needed to tackle the climate emergency and the continued disruption from Covid, while rising interest rates threaten to sink countries in even more debt. G20 leaders cannot keep burying their heads in the sand and wish the debt crisis away.
He further stated that a debt calculation strategy was needed to address the issue. ”We urgently need a comprehensive debt cancellation scheme which compels private lenders to take part in debt relief,” Chow said.
Jason Braganza, Executive Director of the African Forum and Network on Debt and Development (AFRODAD) stated that the debt problems were aggravated by the pandemic,adding that the current debt relief program wasn’t enough.
He said, “Since before the pandemic, AFRODAD had cautioned on the debt precipice facing many African countries. Covid-19 accelerated an already deteriorating situation and will reverse the socio-economic gains of the past decade. We have consistently said the current debt relief measures aren’t good enough and have called for a truly inclusive debt relief programme with all creditors; and a comprehensive debt cancellation programme. This is what will save African citizens from difficult times ahead.”
In conclusion, the report stated that the G20 created a new debt relief scheme at the end of 2020, called the Common Framework, but none of the countries which have applied for it have yet had any debt cancelled.