Save the Children: Convert $60 Billion of Debt into Fund to Fight COVID-19 in World’s Poorest Countries
FAIRFIELD, Conn. (April 14, 2020)—The world’s 75 poorest countries are scheduled to pay $60 billion of debts to external creditors in 2020—more than they are set to receive in donor aid to combat COVID-19. This burden will rob them of the financial resources they need for investment in testing, medical equipment, health workers, and safety nets to battle the outbreak, and will push millions more children into poverty, Save the Children warned today.
In an open letter to G20 finance ministers ahead of the Spring Meetings of the IMF and the World Bank, the agency urges the $60 billion of debt payments to be converted into an investment fund for combating the coronavirus pandemic.
“Providing aid through the World Bank and other donors while allowing commercial debt payments to absorb a large share of the transfer would be the financial equivalent of pouring water into a bucket with large holes,” the letter says.
Without a suspension of debt payments, governments in sub-Saharan Africa will spend more on debt than on health, the agency warns.
The letter also states: “Governments in these countries are now confronted with an invidious choice. They can either repay creditors, or they can invest in the front-line health services, safety nets, and economic recovery measures needed to mitigate the pandemic, combat poverty, and restore inclusive growth. They cannot do both. If debt takes precedence over people, children will be hit first and hit hardest.”
Save the Children has welcomed proposals to suspend payments on official bilateral credit owed to governments but strongly urges the G20 to go further. Commercial creditors account for almost half of total repayments from the poorest countries—and the agency wants banks, commodity traders, and sovereign bond holders to match government debt relief.
“This is not just a matter of financial management,” said Janti Soeripto, President and CEO of Save the Children. “Ultimately, this is about the lives of vulnerable people and the future of children. Failure to act decisively now could set the scene for a ‘lost decade’ marked by rapid reversals in efforts to reduce poverty, malnutrition, and child mortality.”
With economic recession biting, countries across the developing world are fighting a deadly mix of COVID-19 and rising poverty. Based on recent World Bank growth projections, Save the Children estimates that another 22-33 million children could fall into poverty in Africa alone over the next year.
Save the Children is calling for the Spring Meeting of the G20 to agree on a framework for an immediate suspension of debt servicing for countries seeking support, including:
- The Paris Club of creditors, Chinese state creditors and Arab institution creditors to suspend principal and interest repayments with immediate effect;
- Commercial creditors to apply similar terms, with compliance encouraged by making eligibility for COVID-19 recovery financing conditional on participation;
- Increased finance to support multilateral debt relief through the IMF and World Bank.
“Debt relief is not just the right thing to do for vulnerable people in poor countries, it is the smart thing to do for all countries. The coronavirus does not respect borders. If we fail to support governments and communities in the poorest countries, we could open the door to a resurgence of COVID-19 in countries now flattening the curve, and to a financial burden on the poorest countries from which it will take years to recover,” said Soeripto.
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