26. August 2016

Eurodad discussion paper: The Evolving Nature of Developing Country Debt and Solutions for Change

Eurodad 150819 coverThe new discussion paper published by Eurodad is analysing the evolving nature of debt and the regime-building processes at the international level to prevent and resolve debt crises that are becoming more complicated.

The debt burden in developing countries has been on the rise, since 2011 also in relative terms. The implementation of the Millennium Development Goals was facing the challenge of US$ 1.4 trillion of external debt. Now that the international community has adopted the much more comprehensive and costly Sustainable Development Goals this amount has tripled to US$ 5.4 trillion. Debt relief initiatives, which were put into place during the early years of the MDG implementation, do not exist anymore to support the reaching of the Sustainable Development Goals.

Public debt in developing countries is increasingly borrowed from private lenders. Bilateral lenders have been side-lined. Additionally, loans are being replaced by bonds and the provision of loans by new official creditors form emerging economies is on the rise. The nature of debt is changing. The new debt crises are going to be more difficult to solve than previous ones.

Unfortunately, the old debt regime that the 2030 development agenda has inherited has never been able to put loans to work for development or to prevent debt crises. Safeguards were introduced by some lenders like the World Bank or IMF. However, these lenders are providing a decreasing share of finance. The Paris Club as the main institution for debt crisis resolution is covering a decreasing share of total debt. While the landscape of debt is changing the modernisation of institutions is not keeping up.

The first part of this paper draws attention to this situation and the fact that this is getting worse. That’s why a substantial amount of conceptual work on how an effective debt regime in the 21st century could look like has already been done and is presented in the second part of the paper.

Eurodad discussion paper: “The evolving nature of developing country debt and solutions for change” by Bodo Ellmers, July 2016