The pandemic causes a mountain of global debt that will hit in the future

Beyond the terrible death toll, the covid-19 pandemic it has also caused a huge mountain of global public debt, which countries will have to face in the medium term, due to the continuing liquidity pressure and high public spending to contain the effects of the health crisis.

The situation has caused that, for the first time in history, global sovereign debt has equaled the size of the world economy, creating an “unknown” level of uncertainty, according to experts.

“The Covid-19 crisis has devastated people’s lives, their jobs and businesses. Governments have taken energetic measures to cushion the blow, for a total of 12 billion euros worldwide,” said the International Monetary Fund, which said that these fiscal measures “have saved lives” and companies, but have also been very “costly.”

LAST DECADE

Despite the contraction of the world economy, which will fall by 4.4% in 2020, the pandemic has not generated a change in the cycle in terms of debt, but has exacerbated the indebtedness phase and made it denser.

But this scenario has been reached after a decade in which “global tax collection has stagnated, some taxes have been reduced and regions with lower tax collection rates have remained stable or flat,” according to Jaime Atienza, Head of Debt Policy at Oxfam International.

This has been added to the high level of indebtedness, which is mainly due to the supply factor, with a “very large” liquidity pocket in the global financial system, and to the continuous issuance of debt in emerging countries and low-income economies.

“Some countries that were already in tension have had immediate problems, such as the poorest; and others, such as Europeans or the United States, have margins to continue borrowing, they can issue currency and maintain a low interest rate scenario,” Atienza explained. .

“There are many unknowns: the current level of uncertainty we did not know,” he reflected.

POOR COUNTRIES UNCOVERED

On the other hand, the poorest countries in the world face a common situation: the devaluation of their currency causes the cost of their bonds to rise, creating a “very complicated” scenario in the medium term.

A report published this Monday by the World Bank (WB) reveals that debt among the poorest countries increased 9.5% to $ 744 billion in 2019 compared to the previous year, which in the opinion of the president of the multilateral, David Malpass, shows the “urgent” need to act, especially with the crisis caused by the pandemic.

To try to cushion this situation, the Executive Board of the International Monetary Fund (IMF) approved this Monday an immediate debt relief for 25 member countries with the aim of facing the economic impact of the pandemic in those nations.

Most of the beneficiary countries belong to Africa: Benin, Burkina Faso, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Gambia, Guinea, Guinea-Bissau, Liberia, Madagascar, Malawi, Mali, Mozambique, Niger, Rwanda, Santo Tomé and Príncipe, Sierra Leone and Togo.

The list is completed by Afghanistan, Haiti, Nepal, Solomon Islands, Tajikistan and Yemen.

The managing director of the IMF, Kristalina Georgieva, explained in a statement that this fund provides aid to the “poorest and most vulnerable members to cover their debt obligations with the IMF during an initial phase during the next six months.”

Added to this measure was the decision of the G-20 finance ministers, who opted this week to extend the suspension of the debt to the poorest nations.

For Atienza, “the cancellation of debt payments” is necessary since, without it, “the debt tsunami that will take over many of the world’s poorest countries will only be delayed, leaving them unable to afford investment in health and social security “.

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