Countries in debt crisis cut public spending in the face of soaring prices
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New figures released today by anti-poverty campaigners Debt Justice show countries in debt crisis are set to spend less in 2023 than in 2019, despite the urgent need for public spending in response to soaring food prices food and fuel.
Low-income countries with the highest debt payments have seen public spending fall by an average of 3% between 2023 and 2019.
Increased public spending on essential services and infrastructure is essential to respond to soaring food and energy prices, the climate crisis and other national needs, but the absence of effective mechanisms Debt relief obliges countries in debt crisis to reduce public spending in order to repay their debt. .
Debt Justice research is published today ahead of an inquiry by the UK Parliament’s International Development Select Committee into the debt crisis in low-income countries. The UK has significant power to engage private lenders in debt relief since 90% of the bonds of countries eligible for the G20 debt relief program are governed by English law.
Tess Woolfenden, Senior Policy Manager at Debt Justice, said:
“Low-income countries are being forced to prioritize debt repayment over public spending on health or access to food, just at a time when spending is so urgent. The UK must act to ensure that private lenders participate in debt relief. Debt repayments to wealthy lenders must not take precedence over people’s needs in times of multiple crises. »
Abu Bakarr Kamara, coordinator of the Budget Advocacy Network in Sierra Leone said:
“With Ebola and Covid-19, Sierra Leone has faced two major health crises in recent years, which have collapsed the health sector and the economy. Yet debt repayment absorbs vital resources for the recovery. Sierra Leone’s debt cancellation is a critical tool to help the government increase its fiscal space to invest in the health sector in a transparent and accountable manner.
Debt Justice used IMF data to calculate external public debt repayments and public spending cuts for 41 countries for which there is information.
Countries with the highest debt repayments, accounting for more than 15% of government revenue, faced a 3% decline in government spending between 2019 and 2023, compared to a 14% increase for countries with debt repayments. of debt are the lowest.
The Covid-19 pandemic has dramatically increased debt levels over the past 2 years. External debt payments are now at the highest level since 2001. Rising interest rates in the United States and around the world, rising food and energy prices, and the global repercussions of the war in Ukraine could significantly worsen debt levels.
The G20 created a new debt relief scheme, called the Common Framework, at the end of 2020, but none of the countries that have requested it have yet had their debt cancelled. Private creditors could reap significant benefits from their loans to low-income countries if they were repaid in full.
Faced with the prospect of an escalation of the debt crisis in 2022, the IMF has called for faster action on debt relief by obliging the private sector to participate in the Common Framework. On April 21, 2022, IMF Managing Director Kristalina Georgieva said: “We are also pushing for some of the changes, legal changes that need to happen in New York, in London, to close the gaps in vulture funds and some to prevent debt settlement.” 
Chart. Index of change in real government expenditure per person between 2019 and 2023, grouped by the 11 countries with the lowest debt repayments, the 11 countries with the highest debt repayments and the 19 countries with average levels of debt refund
Ghana, Malawi and Sierra Leone are three of the countries with high debt repayments and stagnating or declining public spending. Ghana’s external debt payments account for over 40% of government revenue. Between 2022 and 2025, 57% of its debt payments go to private lenders, 21% to multilateral institutions and 12% to China. The IMF expects real government spending per person to be about the same in 2023, 2024 and 2025 as in 2019.
In Malawi, the IMF expects real government spending per person to be 0.5% lower in 2023 than in 2019. Malawi’s debt payments have suddenly increased due to expensive commercial loans taken out during the pandemic to finance imports. Interest rates on commercial loans could reach 15%.
Sierra Leone’s heavy debt burden was created during the Ebola crisis in 2014 and 2015, but was weighed down by loans during the Covid pandemic. The debt crisis has led to massive cuts in public spending. In 2023, the IMF forecasts that real government spending per capita will be 20% lower than in 2015 and 4% lower than in 2019. This low level of spending is then expected to continue at least until 2025. Between 2022 and By 2025, 46% of Sierra Leone’s external debt payments go to the IMF, 35% to other multilateral institutions and 19% to other governments.