Who are countries usually in debt

Developing countries are threatened with a new debt crisis

Into the debt crisis without debt relief rules

To finance development, many developing countries take out loans from abroad. In this way, they finance investments in infrastructure and increase the performance of the entire economy. But if economic growth weakens for a longer period of time, there is not enough money to repay the loans. The negative effects on the economy and living conditions can be dramatic, as the debt crises of the 1980s and 1990s in Latin America and Africa demonstrated.

Debt rescheduling and numerous debt relief initiatives in the past have benefited many developing countries and helped them develop again. But after the crisis, the international community failed to introduce binding rules for responsible lending and borrowing, as proposed by the UN Organization for World Trade and Development. In addition, debt relief in the event of bankruptcy has not yet been fundamentally regulated, which is why many countries are facing a fatal debt crisis again.


Many poor countries are facing an unsustainable debt burden.
Christine Lagarde, former Director of the International Monetary Fund (IMF)

Debt crisis threatens to hamper development

Public debt is currently increasing in many developing countries. Due to the low interest rates in Europe and the USA, emerging countries in particular have taken out loans generously. The debt ratio of developing countries rose between 2011 and 2018 from 36 to 51 percent of their economic output. The IMF is forecasting a further increase. But from 50 percent it becomes risky for the poorer countries. Because in contrast to European countries, they do not have a rescue package. The IMF is already warning of critical debt levels in more than 40 percent of poorer countries.

Rising interest rates like 2018 in the USA or falling raw material prices can easily trigger a debt crisis with dramatic consequences. "Rapidly growing debt is jeopardizing development goals as governments spend more on debt servicing and less on infrastructure, health and education," warns Christine Lagarde, former IMF director. Ultimately, this leads to less employment, growing social tensions and has a lasting effect on development. But it doesn't have to come to that.

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Fair debt relief helps millions of people

In this sense, an international arbitration tribunal should enable a settlement between debtors and creditors, which also uses the usual means in other credit transactions such as deferment of payment and haircut. At the same time, this ensures that debtors and creditors jointly take responsibility for their lending business. Because if you are a private financier looking for high profits in risk regions, you have to reckon with defaults or you will not grant any loans.

So that poorer developing countries can still finance progress, the World Bank and governments should grant more loans with lower interest rates, longer terms and the possibility of deferring payments or even partial debt relief. The poorest countries are best served by grants. Should there be rigorous austerity measures, social programs and aid for the poorest must be excluded.


What bread does for the world

In order to achieve these goals, we work together with the debt relief alliance “Erlassjahr.de”. We jointly demand that the G20 countries in particular take the looming debt crises seriously and try to avoid them through decisive political action.

We also cooperate with our partners in the affected countries, especially with the international networks for debt relief such as Eurodad, Afrodad and Latindadd. For example, at the Civil20 summit in Argentina, Bread for the World organized a workshop on debt crises with these partners, which received a great deal of attention. We presented the demand from the workshop for fair arbitration for over-indebted states as part of the Civil20 demand package both at the G20 summit in Argentina and in Japan the following year.


What you can do

Support the debt relief alliance, which we support. Get involved with your association, your parish, your one world group or join the alliance yourself. At Erlassjahr.de you can also order the traveling exhibition “Stories of the Debt Crisis” and show it in your city. It increases the sensitivity for the topic and presents historical debt crises including a solution. In addition, there are materials for schools, church services, lectures and much more. With the help of the alliance, you can also work as a grassroots group, development policy initiative or church community on a joint project for a fair financial system. You can find all the necessary information at Erlassjahr.de.


Take-away material

Debt Report 2020

The situation is alarming: 124 of 154 developing and emerging countries examined are critically indebted and 19 can no longer service the loans, and the number is rising. This debt report shows that we are in the middle of a sovereign debt crisis.

Download (PDF)

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