This year Pakistan will spend over $20 billion on debt payments to big banks and hedge funds.
Right now, the country is struggling to rebuild after horrendous flooding last year, which affected 33 million people, made far worse by the climate crisis. Yet Pakistan’s lenders continue to demand the maximum debt repayments. With the high interest rates they have charged, financial speculators could make 200% profit if paid in full.
These lenders are acting like cowboys – making millions in interest payments while lower income countries, such as Pakistan, are left without enough money to pay for health, education, or the climate crisis.
Incredibly, the UK plays a key role in enforcing debt contracts. This means the UK could take a lead in making cowboy lenders cancel debt.
The global debt crisis
The past few years have seen debts owed by some of the poorest countries mount up to unsustainable levels. Debt payments are at the highest level for 25 years.
Due to the economic crisis and high interest rates, 54 countries are now facing a debt crisis. But instead of agreeing to cancel some of the debt, big banks and hedge funds are demanding it all – plus interest.
A few countries, such as Zambia, have stood up and demanded lenders cancel some of their debts. But they have been rebuffed. Cowboy lenders have rejected their call for debt cancellation – leaving Zambia trapped in never ending negotiations. This has also discouraged other countries such as Pakistan from calling for the debt cancellation their people so urgently need.
The failing global debt relief initiative
In 2020, recognising how the Covid pandemic had worsened the debt crisis, the G20 group of self-appointed most powerful countries created a debt relief scheme. Zambia is one of only four countries to apply for the scheme so far, and none have had any debt cancelled.
The largest lenders to these countries are private companies such as big banks and hedge funds. They have refused to cancel the amount of debt needed and are instead holding out for huge profits.
Profits ahead
If the cowboy lenders are successful and they continue to be paid in full, they stand to make massive profits. Loans were given at high interest rates – between 6% and 10% – far more than these lenders charged countries such as the US or UK.
These profits will come at the expense of providing social services and tackling the climate emergency. At the end of last year, Ghana joined Zambia in calling for some of its debt to be cancelled. In 2022, Ghana spent three times more on external debt payments than it did on health care. Debt Justice estimates that cancelling Ghana’s debt to a sustainable level could free up enough money to increase spending on health, education and climate by 50%.
In contrast, if Ghana’s cowboy lenders are paid in full, they could make between $13 billion and $19 billion between them.
Bernard Anaba from the Integrated Social Development Centre in Ghana says: “Debt is impacting on the livelihood of many poor Ghanaians. Escalated food prices and the high cost of some basic social services are sending many Ghanaians back into poverty. We urgently need debt cancellation from foreign lenders to tackle our economic crisis. The UK has the power to make private lenders take part in debt relief. We urgently need them to do so.”
The central role of the UK
Ghana, Pakistan and Zambia’s debts to cowboy lenders are all governed by English law. This means that the UK has the power to make them take part in debt relief.
And it is not just these three countries. 90% of the lending for the poorest countries is enforced through UK Courts. The UK currently props up the mass profits lenders can make from the global debt crisis, but it could change the law to give countries a way out of the debt trap.
The UK has acted before. In 2010 the UK passed a law to require lenders to take part in a previous international debt relief scheme.
Last month, the UK parliament’s International Development Select Committee called on the government to consult on the introduction of legislation to compel private lenders to take part in debt relief.
Please join us in pushing for a new law to make cowboy lenders cancel debt.
We can stop them in their tracks, but only if enough of us act. Will you write to your MP to call and add your voice to the campaign?