At their spring meeting, the World Bank and the International Monetary Fund (IMF) will primarily discuss the war in Ukraine and its consequences for the global economy: it will lead to massive increases in food and energy prices. With that, debt relief for the poorest countries is back on the agenda. These are in great difficulty simply because of the two-year pandemic, says Dominik Gross from Alliance Sud.
SRF News: What would debt relief do for the world’s poorest countries?
Dominik Gross: Debt relief would be a great relief for many highly indebted countries in the Global South. In this case, they would have much more resources at their disposal to fight the corona crisis, invest in education, build a more sustainable economy or even just provide cheaper food.
World Bank boss David Malpass has called for such debt relief. Is this actually happening now?
That is difficult to say. Two years ago, after the first wave of the pandemic, there was discussion about debt relief for the poorest countries and it was decided to postpone debt for the time being. The poorest countries did not have to make any interest payments, or received support from the IMF, World Bank and the G20 to service the debt for 2020 and 2021.
Now you are back in the same situation as two years ago.
In the meantime, these programs have expired and the situation is the same as two years ago – although it was announced at the time that the debt issue would be changed in the long term.
How would the poorest countries benefit in concrete terms?
An example: The West African country of Ghana needs around 30 percent of its national budget to finance debt – in Switzerland this proportion is around two percent. Without the debt service, Ghana would have much more money available for other things.
What would such debt relief look like?
In the best-case scenario, it would have to go hand in hand with structural changes in the global debt system. It would also have to be ensured that the countries concerned generate more tax revenue – for example from international companies that transfer the profits they generate to low-tax countries such as Switzerland.
Debt relief alone does not solve all problems.
Because: Where there is no tax money, there tends to be more debt, because government spending has to be financed somehow. In this respect, debt relief alone does not solve all problems. However, he could currently help to avoid hunger crises by giving poor countries the means to buy food and sell it cheaply.
What are the consequences for the world’s poorest countries in the face of rising energy and food prices if there is no debt relief?
The increase in prices hits the population uncushioned. Because the state has hardly any possibilities to react to the price increases. The situation is already dramatic – and basically it was because of the two-year pandemic before the war broke out in Ukraine.
How can the poorest countries get out of their predicament if debt relief does not materialize?
There’s not much you can do yourself other than save. They are therefore dependent on the creditors giving up part of their money. Only in this way will the situation of the people in the poorest countries not deteriorate any further.
The conversation was conducted by Zoe Geissler.