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Don’t turn the clock back: Analysing the risks of the lending boom to impoverished countries

Added 24 Oct 2014
Eurodad member Jubilee Debt Campaign recently published a report entitled “Don’t turn the clock back: Analysing the risks of the lending boom to impoverished countries”. The report analyses the risk of debt payments undermining the ability of governments to meet basic needs and public services. 

There is currently a boom in lending to impoverished countries. External loans to low income countries increased by 75% between 2008 and 2012. Lending to sub-Saharan African countries doubled over the same time period. 

The report finds that two-thirds of impoverished countries face large increases in the share of government income spent on debt payments over the next ten years. On average, current lending levels will lead to increases of between 85% and 250% in the share of income spent on debt payments, depending on whether economies grow rapidly, or are impacted by economic shocks. Even if high growth rates are achieved, a quarter of impoverished countries would still see the share of government income spent on debt payments increase rapidly.

Therefore, the report makes the following recommendations: 
  • Commit that all UK bilateral aid will remain as grants.
  • Shift aid money away from sources which give loans, towards sources which give grants.
  • Require all lenders funded by the UK, including UK Export Finance, the World Bank and IMF, to sign up to responsible lending guidelines, including public scrutiny of loan terms before contracts are signed.
  • Support the creation of a fair, transparent and independent process for resolving sovereign debt crises, to show banks they won’t be bailed out for reckless loans.
  • Support the creation of debt sustainability assessments which are conducted independently of creditor and debtors, take into account the meeting of basic needs and public service provision, and apply to all countries.
  • Introduce policies to support developing countries in increasing their tax revenues, including by preventing the loss of revenue through tax avoidance and evasion.
Click here to read the full report or on the download button below.