The United Nations (U.N.) has called upon global finance ministers to provide a debt-poverty pause for impoverished countries. It has emphasized the need for funding to go toward social programs that will help reduce poverty, rather than toward repaying debts.

A Global Poverty Crisis

The United Nations Development Programme (UNDP) has estimated that the COVID-19 pandemic, paired with the subsequent rise in inflation and borrowing costs, has resulted in an additional 165 million people falling into poverty. The UNDP says that more than 20% of the population worldwide is living on less than $3.65 a day, making it difficult for them to afford basic necessities like food.

In response to the pandemic and the rise in costs of food and fuel, exacerbated by Russia’s invasion of Ukraine, many low-income countries resorted to substantial borrowing. This situation strained their economies as it affected agricultural commodity supplies and led to energy prices reaching close to record levels.

According to the UNDP, approximately 25 low-income countries spent more than 20% of their revenues on debt servicing in 2022. This is the highest number of countries surpassing this threshold since the beginning of the century. This rate can also continue to rise if global interest rates increase further. Debt interest payments account for more than 10% of the general government revenue in 46 countries, and developing countries owe around 30% of the worldwide $92 trillion of government debt. Costs associated with servicing debts are rising quickly, attributed to the actions of the world’s influential central banks, which are raising interest rates in response to the rapid increase in inflation rates.

The rise of interest rates means that poorer nations now spend two or three times the share of their revenues on paying back their debt compared to wealthier countries. Impoverished countries also spend about two times more on interest payments than public assistance and social support programs.

The UNDP Pushes for a Debt-Poverty Pause

The UNDP says that low-income countries need reprieves from repaying their debt to alleviate the repercussions of rapidly increasing borrowing costs. It urges countries burdened with debt to allocate resources typically used for debt servicing toward mitigating the social effects of economic shocks. This approach aims to alleviate some of the adverse effects on society due to these shocks so that the focus can be on poverty reduction.

Looking Forward

The United States (U.S.), the European Union and the other members of the Group of 20 (G20) recently met to discuss global solutions, including debt restructuring and global poverty. However, the debt restructuring discussions made very little progress during the finance meeting of the G20 countries in India.

The UNDP continues to push for debt alleviation to fight global poverty. So far, there have been some elements of international financial activity aiming to increase focus in terms of financing poverty reduction and social programs. However, western countries and the G20 still have work to do. The UNDP has urged Western countries to give developing countries the debt-poverty pause they require to focus their financial efforts on alleviating poverty in their communities.

– Marisa del Vecchio
Photo: Flickr