Pakistan is among the countries that have seen their economies grind to a halt under the pressure of towering debt servicing requirements. UN Conference on Trade and Development (UNCTAD) Secretary-General Rebeca Grynspan recently said the world is in desperate need of a better mechanism for debt restructuring and debt relief, noting that apart from Pakistan; Egypt, Mongolia, Sri Lanka and even oil-rich Angola are in similar dire straits.
Grynspan was critical of world powers and international financial institutions over their role in creating a debt crisis for many developing countries, noting how debt servicing today can reach up to one-third of the export earnings of several smaller countries. She contrasted this with the terms offered to Germany after World War II, when it was decided that Germany’s payments would be kept variable to ensure that they did not exceed 5% of the country’s export earnings. These favourable terms played a major role in allowing the Germans to rebuild their country into an economic power.
There is a sad irony to the fact that the western powers offered such terms to an enemy country that was responsible for the deaths of millions of their soldiers during the war, but were unwilling to offer similar terms to countries that were ostensibly their allies during the war, or in the case of Pakistan, during and after the Cold War. While the limited debt relief after the outbreak of the Covid-19 pandemic was welcome, it was not enough to let most developing economies chart a path to prosperity. In fact, several countries ended up adding debt to address the crisis. Even today, the war in Ukraine has caused global food and energy insecurity and inflation, with developing countries the worst hit.
Grynspan rightly called for a debt suspension initiative for low-income countries if they are to weather the impact of the Ukraine war, and even beyond, because pulling out from under mountains of debt will be impossible for these countries unless they get relief or favourable restructuring.
Published in The Express Tribune, March 30th, 2022.
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