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To finance development, many poor countries have to take recourse to external loans. By itself this is not bad or dangerous because the debt can be used to , f. i., invest in infrastructure, raising the output of the economy.
But if loans are taken and given without considering the economic capacity of the debtor, the repayment could become a problem. In the 1970s and 1980s this led to the so called “Third World Debt Crisis”. Today we can observe a similar trend: Poor countries in Africa, Asia and Latin America have comparatively easy access to fresh money because low interest rates in the Global North make investments in the Global South very attractive.
Rules for responsible borrowing and lending are important since they make clear, that creditor and debtor share responsibility for the success of the lending operation.
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New Focus Paper: Participation of Multilateral Development Banks in Debt Relief
Since April 2020, the members of the G20 and the Paris Club have granted up to 73 of the poorest countries a debt moratorium aimed at creating fiscal scope to facilitate combating the COVID-19 pandemic. Since November 2020, a debate has been ongoing over whether to grant real debt relief…
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Out now: Global Sovereign Debt Monitor 2021
The coronavirus pandemic has further exacerbated the debt crisis in the Global South. Countries with low to middle incomes, whose economies were already unstable, are the most affected of all by the effects of recession, and their debt servicing ability has been substantially weakened. Download the full report here. At…
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