According to a new report published July 31 by Debt Relief International and the Norwegian Church Committee aid agency, the burden of debt service on developing nations’ budget spending is at an all-time high, at 42.2% of total spending. This is an average for all developing countries, further broken out in the report into the categories: “heavily indebted poor countries (HIPC), low-income countries (LIC), low-middle income countries (LMIC), and upper-middle income countries (UMIC).”
The report appears at a point when the nations recently joining the BRICS group or having planned to join it, are under concerted economic warfare attack by the City of London, Wall Street, and the IMF, which is imposing “conditionalities” on loan packages to them, in order to cut their spending on anything other than debt service. These targeted nations have included Egypt and Ethiopia—which have been forced into deep devaluations of their currencies—South Africa, Argentina, Iran (with most-sanctioned nation status), Venezuela, and Bangladesh (not a BRICS but a New Development Bank member nation).
What causes have created this most intense pressure of debt on developing countries? According to the Debt Relief International report, they have been worsening for a decade-and-a- half.
First, was the drying up of sovereign credit (including that from multinational development banks), starting in the aftermath of the 2008 crash. This shifted so-called high-income-country lending over to “public-private partnerships” and private bondholders, with interest rates not high, but very high, above 10% and as high as 15%. Second came the rapid inflation of world prices of commodities dated—in this report—from 2018, and previously covered in EIR as exploding in 2019 after a decade of “quantitative easing” or money-printing by the trans-Atlantic and Japanese central banks. Third was the Federal Reserve-led increase in interest rates on sovereign lending, including rates on non-concessionary lending by World Bank etc.; this not only made debt more difficult to service, but also hit developing country currencies with repeated devaluations, making the debt burden bigger in the borrowers’ currency. And fourth, in a form of corruption, developing countries over the past two decades have turned to domestic credit markets to borrow, but have borrowed there at very high rates because of issuing large-denomination bonds to a very few favored lenders.
Thus it is the lack of development credit, ironically, which has created an all-time high debt service burden on developing countries. Annual debt service is now 8.4% of GDP on average of all developing nations; it is 2.5 times the spending on education, and 4.2 times the spending on healthcare.
As to who the creditors of developing countries now are: It appears that the report assigns 46% of the debt to multilateral creditors such as the World Bank; 20% to banks and other commercial creditors; 20% to China as the largest bilateral national lender; and the remainder to other bilateral lenders in the G20 and to domestic banks and lenders in the borrowing countries.
