Global South’s Debt Problem

September 5, 2023

Many developing nations are facing escalating external debt issues, with their debt levels reaching the highest point in 25 years. This surge in debt has become a central topic of discussion at the upcoming G20 Summit.

Several countries are actively addressing their debt crises, with varying degrees of progress. Zambia, Sri Lanka, Ghana, Pakistan, Tunisia, Egypt, El Salvador, Kenya, and Lebanon are among the nations dealing with these economic challenges, each employing different strategies to manage their debt burdens.

Key Points:

Zambia: After being the first African country to default during the COVID-19 pandemic, Zambia has made progress with a $6.3 billion debt rework deal with creditors and is working towards a comprehensive repair plan.
Sri Lanka: Sri Lanka initiated a debt overhaul plan, with most domestic bondholders agreeing to exchange bonds into new Sri Lankan rupee-denominated notes. However, some aspects of the plan have faced delays.
Ghana: Ghana, which defaulted on most of its external debt in late 2022, aims to reduce international debt payments by $10.5 billion over the next three years. The government has made significant progress in addressing domestic debt and is in discussions with bondholders.
Pakistan: Pakistan reached a bailout agreement with the IMF, Saudi Arabia, and the UAE but faces challenges with tax reforms that may impact its renewables energy market. This has raised concerns about its ability to meet climate obligations.
Tunisia: Tunisia is facing a severe economic crisis, with potential defaults looming. President Kais Saied has criticized IMF terms for unlocking funds, and international support largely hinges on IMF-related reforms.
Egypt: Egypt is grappling with a large hard currency debt burden and high interest payments. The country’s success in managing its debt may depend on support from wealthy Gulf nations.
El Salvador: El Salvador has improved its debt situation, partly due to debt buybacks and fiscal policies. It shifted from a default risk to a bond market favorite, thanks to President Nayib Bukele’s measures.
Kenya: Kenya’s public debt stands at nearly 70% of GDP, with the government taking measures to address the issue, including tax hikes. However, political opposition and protests pose challenges.
Lebanon: Lebanon has been in default since 2020, with no clear resolution in sight. The central bank’s proposal to lift the currency peg represents a potential step toward addressing the crisis.