Debt relief could lead to 17 million people gaining access to clean drinking water, 5 million more children attending school, and over 59,000 children and mothers’ lives being saved in lower-income countries. Analysis released today by the GRADE (Government Revenue and Development) project, based at the University of St Andrews and University of Leicester, shows that there could be huge benefits if cancellation of debts brought countries’ external debt down to sustainable levels.[1]
People in many lower-income countries are suffering from high government debt payments taking money away from essential services. External debt payments are at the highest level in three decades, averaging 18% of government revenue across lower-income countries.[2]
Dr. Bernadette O’Hare from the University of St Andrews (Co- Director of the project along with Prof. Stephen Hall from Leicester University), said:
“There is the potential for huge increases in welfare in highly indebted countries if debt was reduced to sustainable levels. These countries are often extremely vulnerable to climate change and many governments must reallocate resources after extreme climate events. Access to basic public services is critical for increasing a community’s resilience to climate change. These figures demonstrate that debt reduction would significantly increase access to public services, reduce vulnerability to climate change, and would positively impact millions of children and their families. The argument for debt reduction is overwhelming.”
Heidi Chow, Executive Director of Debt Justice, said:
“The opportunity to vastly improve the life chances of millions of people across lower income countries is staring the government in the face. The government can make these figures a reality by passing new legislation to ensure banks and hedge funds cancel debt to sustainable levels.”
The calculations show what could happen if government external debt service were reduced to 5%, 10% or 14% of government revenue. If debt relief reduced external debt payments to 14% of government revenue, 16 million people could gain access to basic sanitation, 7 million could access clean drinking water, 2 million children could attend school and over 30,000 children and mothers could survive. These improvements would be across 39 countries currently spending more than 14% of government revenue on debt payments.
If external debt payments were cut to 5% of government revenue, 33 million people could gain access to basic sanitation, 17 million could access clean drinking water, 5 million children could attend school and over 59,000 children and mothers could survive, across 88 countries.
Countries with high debt levels included in the analysis include Angola, Kenya, Pakistan, South Sudan and Tunisia. The IMF position is that, following debt relief, external debt payments should be well below 14%-23% of government revenue.[3]
Notes
[1] The full research paper and all data, including by country, is available at https://medicine.st-andrews.ac.uk/grade/wp-content/uploads/sites/39/2024/08/Debt-Justice_WP.pdf
[2] Calculated by Debt Justice from IMF and World Bank sources. See https://data.debtjustice.org.uk/ for figures by country
[3] An IMF guidance note released in August 2024 says that post-restructuring, a lower-income country’s debt risk should be “moderate” with “some space” or “substantial space” to absorb shocks. To be at moderate risk requires being below all four IMF thresholds for external debt sustainability, which in terms of external debt service as a proportion of government revenue is 14%-23%, depending on whether a country is rated as having ‘weak’, ‘medium’ or ‘strong’ debt carrying capacity. To have “some space” or “substantial space” to absorb shocks requires being well below all thresholds, so that no one shock can move a country back to high risk.
https://www.imf.org/en/Publications/Policy-Papers/Issues/2024/08/05/Supplement-to-2018-Guidance-Note-on-the-Bank-Fund-Debt-Sustainability-Framework-for-Low-553151?cid=em-COM-123-48853