Lending levels to the most impoverished countries in the world have tripled, ten years after the G7 finance ministers agreed a debt cancellation deal for low income countries, potentially setting a new debt trap for the countries that benefited from the deal.
The debt cancellation agreement made in London in 2005 by the G7 Finance Ministers has led to $130 billion of debt being cancelled for 36 countries, most recently Chad in May 2015. This has reduced the money governments were spending on debt payments, and has helped lead to improvements in public services.
Tim Jones, economist at the Jubilee Debt Campaign, said:
“Debt cancellation was vital in 2005 for countries to get out of the debt trap, and help provide essential services such as healthcare and education. However, nothing was done to prevent reckless lending re-creating debt crises, as is now seen in Europe. Governments continue to bailout lenders, incentivising them to continue acting recklessly, whilst giving large amounts of their ‘aid’ money as loans.”
Since 2005, for the 36 countries which had some of their debts cancelled:
• Their debt payments have fallen from 10% of government revenue to 4%
• The proportion of children completing primary school has increased from 51% to 66%
• The number of women dying in childbirth has fallen from 680 per 100,000 births to 500
However, figures calculated by the Jubilee Debt Campaign, based on data from the World Bank, show that loans to impoverished country governments have increased by 40% in just one year, and have more than tripled since 2005.
Lending to ‘low income countries’ increased to $17.3 billion in 2013, the latest year with figures available, up from $12.2 billion in 2012 and $5.1 billion in 2005. Of the loans since the global financial crisis began in 2008, 63% are from multilateral institutions, primarily the World Bank and International Monetary Fund, 27% from governments such as China, Japan, France and Germany, and 10% from private lenders.
Research by the Jubilee Debt Campaign, based on IMF and World Bank figures, has shown that debt payments for low income countries are set to increase from 4% of government revenue today to up-to 13% by the early 2020s. Many countries could see debt payments increase by even more, with Ethiopia, Ghana, Rwanda, Senegal, Tanzania, Uganda and Zambia all among the countries which could be spending over 20% of government revenue on foreign debt payments by the early 2020s.
In September 2014, the United Nations passed a resolution to begin negotiations on creating a ‘bankruptcy’ process for governments. Such a mechanism would indicate that reckless lenders would no longer be bailed out by the IMF and other public institutions, as has happened in many developing countries as well as Greece. Just 11 countries voted against the UN negotiations taking place, but this included the UK, US, Germany and Japan. The next negotiating session at the UN will take place on 30 June to 2 July 2015.
On 11 June 2005, the G7 Finance Ministers meeting in London agreed to cancel the debts of so called Heavily Indebted Poor Countries owed to the IMF, World Bank and African Development Bank. The 36 countries which have had debts cancelled under the scheme are Afghanistan, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoros, Republic of Congo, Democratic Republic of Congo, Cote d’Ivoire, Ethiopia, the Gambia, Ghana, Guinea, Guinea Bissau, Guyana, Haiti, Honduras, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Tanzania, Togo, Uganda, Zambia.