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Developing countries in the stranglehold of debt. Part 3

The coronavirus pandemic and other aspects of the multidimensional crisis of global capitalism are enough to fully justify suspending debt repayment. Indeed priority must be given to protecting people against ecological, economic and public health disasters.

In the context of the current emergency, we have to assess longer trends that make it necessary to implement radical solutions to the issue of DCs’ debt. This is why we develop our analysis of factors that currently increase the unsustainability of the debt repayments claimed from countries in the Global South. We shall consider in turn the downward trend in commodity prices, the reduction of foreign exchange reserves, continued dependence on revenue from commodity export, the DCs’ debt payment calendar, with major repayments due between 2021 and 2025, mainly to private creditors, the drop in migrants’ remittances to their countries of origin, the back flow to the North of stock market investments, the perpetuation of capital flight.1 Payment rescheduling granted in 2020-2021 because of the pandemic by creditor countries that are members of the Paris Club and of the G20 only accounts for a small portion of repayments owed by developing countries.

1. The fall in commodity prices

At the beginning of the 1980s, the fall in commodity prices was the second main factor triggering the Third World debt crisis. History repeats itself today for those vulnerable countries that remain dependent on their export revenues. Commodities are indispensable as the sole means of providing the foreign currency required for external debt payments. Yet since 2014-2015 they have been exported at prices far lower than those previously reached (see Graph 1). The reversal causes serious financial hardship for a number of countries dependent on revenues from oil, agriculture or minerals. This factor has been aggravated by the devaluation of currencies of countries from the South against the U.S. dollar. Oil exporting countries are particularly badly hit as oil prices have plummeted.

Graph 1: Evolution in commodity prices between November 2010 and November 2020 2

We can observe a clear correlation between the evolution of commodity prices and DCs’ external indebtedness. From 1998 to 2003, a period that saw backflow of DCs’ capital towards the countries of the North, commodity prices were relatively low. From 2003-2004 on, those prices began a steep increase culminating in 2008. This phenomenon attracted investors and lenders from the North who were looking for countries offering guarantees based on their resources in commodities and their export revenues. Thus, starting from 2008, there was a period of inflowing capital from countries of the North towards the DC. The governments and big private companies of the South were incited to take on more debt taking advantage of the super-cycle of commodities. Nevertheless there was a fall in 2009 due to the global crisis triggered by the major financial crisis of 2008 in the United States and Western Europe. Commodity prices rose again in 2010. In 2014 the cycle suddenly collapsed.

From 2015 to 2020 commodity prices fluctuated upwards from year to year without ever recovering the peaks reached during the ’super-cycle’. In the wake of the economic and financial crisis aggravated by the health crisis, prices literally collapsed during the first half of 2020. Despite the rebound in prices in the second half of the year, the trend is clearly negative for a range of commodities between 1 January and 1 December 2020: -8.30% for all commodities (fuels: -31.21%; lead: -7.67%; cotton: -5.17%; cocoa beans: -11.92%; tea: -13.54%; coffee: -3.21%). Gold, a safe-haven asset, especially in times of crisis, rose by 21.76%.

2. The fall in foreign exchange reserves

With less export revenue, reserves fell rapidly (see graph 2) and indebtedness accelerated. 2020 ended on a strong increase of the debt.

Graph 2: DCs’ foreign exchange reserves in months of import 3

The end of the ‘super cycle’ coincided with a steady drop in DCs’ foreign exchange reserves in months of import. Whereas countries dependent on commodities are advised to hold at least three months of import in foreign exchange reserve, low income countries are now well below this threshold. With the new fall in oil prices in 2020, the drop in export revenues, the higher amounts to be repaid from 2020 onward, a number of countries, particularly oil exporting countries, may not be able to repay their public external debt.

3. Continued dependence on exporting commodities

The price of commodities is of fundamental significance in the present system of indebtedness for DC. Colonialism followed by neo-colonialism, strikingly illustrated by the IFI’s structural adjustment programmes, have deliberately maintained the majority of DCs in an “extractivist” model: exporting commodities. Inadequately provided with infrastructures of transformation, they are extremely sensitive to volatility of prices. That volatility is sustained by speculation on the major international stock-markets.4 If you take the 29 low-income countries (see Table 2), with the exception of North Korea and Haiti, all depend on the evolution of the price of one commodity or another. We could extend the exercise to middle-income countries and find similar results. For example in 2017, fossil fuels represented between 50 and 97 % of exports for the Democratic Republic of Congo (50 %), Gabon (70 %) and Angola (97 %); agricultural produce represented 80 % of exports from Grenada; mining products 75 % of exports from Zambia and 92 % from Botswana.

Box: What is an extractivist export-oriented model?

This model consists of a set of policies that aim to extract from the soil and subsoil a maximum of primary goods (such as fossil fuels, minerals or timber) and to produce a maximum of agricultural produce intended for foreign market consumption, in order to export them on the global market. This model has numerous harmful effects: environmental destruction (open-air mines, deforestation, contamination of running water, salinization/ depletion/ poisoning/ erosion of soils, reduction of biodiversity, greenhouse gas emissions, etc.); destruction of the natural habitat and way of life of entire populations (first peoples and others); depletion of unsustainable natural resources; dependency on global markets (stock-markets for raw materials and agricultural commodities) where the prices of export products are determined; salaries kept low to remain competitive; dependency on technologies owned by the highly industrialized countries; dependency on inputs (pesticides, herbicides, seeds whether transgenic or not, chemical fertilizers…) produced by major transnational companies (mostly from highly industrialized countries); subjection to international financial and economic conditions.

Source : Éric Toussaint, “Ecuador: From Rafael Correa to Lenin Moreno”, www.cadtm.org

Table 1: Dependence of low-income countries on commodities (in months of import)5

Dependence on export of agricultural products Dependence on export of fuels Dependence on export of minerals, ores and metals
Countries Reserves in
Countries Reserves in
Countries Reserves in
Afghanistan 12.02 Sudan (2017) 0.19 Burkina Faso Nc
Central African
Nc Chad Nc Burundi (2018) 0.88
Ethiopia 1.8 Yemen Nc Eritrea Nc
Gambia (2018) 3.59 Guinea 3.26
Guinea-Bissau Nc Liberia 2.99
Madagascar 4.38 Mali Nc
Malawi 2.82 Mozambique 4.36
Uganda (2018) 4.18 Niger Nc
Syria Nc DRC (2018) 0.41
Rwanda 4.28
Sierra Leone (2018) 3.47
Tajikistan 1.68
Togo Nc

Table 2: Developing countries with foreign exchange reserves under 3 months of import

Low income countries Lower middle income countries Upper middle income countries
Ethiopia 1.80 Djibouti 1.22 Belize 2.38
Liberia 2.99 Eswatini 2.11 Belarus 1.86
Malawi 2.82 Ghana 2.73 Ecuador 0.77
Tajikistan 1.68 Laos 1.57 Guyana 1.79
Pakistan 2.55 Kazakhstan 1.61
Sao Tome & Principe 2.89 Kosovo 2.52
Sri Lanka 2.95 Maldives 1.96
Zambia 2.08

With the trade war between the United States and China and the general slow-down in growth accentuated by the multidimensional COVID-19 crisis, commodity prices have continued to fall dramatically during the 1st half of 2020. In the second half of 2020 oil prices remained very low while prices of other commodities increased slightly.

4. DCs’ repayment calendar

The amounts that the DCs must repay are particularly high and the effects of the crisis will increase them even more in the coming years. (Obviously the table below cannot show this.) Governments are increasing public debt to alleviate the drastic situation of the year 2020.

Graph 3: DCs’ repayment of public external debt–2007-2027 (in $ billion)

Graph 3 shows the amounts paid by the DCs by type of creditor:

  • In blue: bilateral creditors
  • In yellow: multilateral creditors
  • In red: IMF loans (no available data after 2020)
  • In green: private creditors. Dark green represents the amounts due for sovereign debt  bonds; khaki represents repayments of bank loans; light green payments due to other kinds of private creditors.

A considerable increase of payments can be seen between 2007 and 2020, with an increasing share allocated to repaying loans issued in the form of sovereign debt bonds. In 2015, with the fall in commodity prices (which became much worse for oil prices in 2020), the rise in interest rates (especially loans in the form of sovereign bonds) and the global slowdown in economic growth, 9 DCs defaulted on their payments.6

As of 2020, note that the data are minimal projections, which are likely to increase. However the amounts are already considerable. You can see how the part owed in the form of sovereign bond repayments tends to increase. As well as the factors mentioned, the effects of the COVID-19 pandemic will need to be taken into account.

Because of the pandemic, the G20 countries have granted a moratorium on repayments of the bilateral part for the period from May 2020 to April 2021. This moratorium may be extended to the end of 2021. The operation consists of postponing payments on the bilateral part owed in 2020 (and perhaps 2021) to between 2022 and 2026. So those amounts would be added to the repayments already scheduled for those four years and would make it even harder to find the money. Although 73 countries were selected,7 only 46 countries have actually participated in this debt service suspension initiative (DSSI).8 Why so few? There are two reasons. The first concerns the inadequacy of the measure which simply postpones payment of a mere 1.6 % of the DCs’ external public debt; and the second is that they are blackmailed by the private creditors and the credit rating agencies, the latter indicating that countries applying for a moratorium risk seeing rating agencies downgrading their rating, thus losing their access to the finance markets.9 In other words, the creditors promise to increase interest rates for those countries, while the rating agencies threaten to limit their possibilities of obtaining finance on the money markets. As a consequence, those countries will find themselves having to repay a greater amount with fewer resources. Returning to Table 1, such economic circumstances look like bringing back negative net transfers for the DCs; in other words, they will find themselves repaying more money than they are getting in the form of new loans.

The debt trap is closing slowly but surely on a growing number of DCs.

5. Other factors aggravated by COVID-19

Although the COVID-19 crisis cannot be blamed for all the economic difficulties countries are going through, it certainly has played a role in intensifying unprecedented financial speculation by the sheer extent of it, as well as a decrease in production from mid-2019 in economies as big as those of Germany and the United States.10 Finance vacillated significantly in Wall Street in Autumn 2019 11 and again in February-March 2020 with the generalization of lockdown followed by massive intervention on the part of the central banks.12 The crisis which has spread catastrophically since March 2020 will have long-term consequences in terms of job losses, loss of revenue and difficulty in meeting debt payments.

Although the COVID-19 crisis cannot be blamed for all the economic difficulties countries are going through, it certainly has played a role in intensifying unprecedented financial speculation by the sheer extent of it, as well as a decrease in production from mid-2019 in economies as big as those of Germany and the United States

In the (translated) words of Gilbert Achcar,

143 million companies were destroyed in lower middle income countries (- 14 %), 128 million in upper middle income countries (- 11 %), […] And, if lower income countries only lost the equivalent of 19 million jobs (- 9 %) over the same period, this figure is a poor translation of the socio-economic impact of the crisis they experience.” He proceeds, “According to the World Bank, as a consequence of the pandemic, extreme poverty–defined as surviving on less than 1.90 dollars per day–increased in 2020 for the first time since 1998, just after the 1997 Asian financial crisis.13

In the wake of the crisis, we are seeing repatriation of financial resources from the Periphery to the Centre, which results among other things in the collapse of stock-markets in countries of the South, while those of the North have rallied since mid-March. Thus the stock-exchange of Mexico City fell by 2.5 %, the Santiago stock-exchange in Chile by 7.25 %, Nairobi’s by 5.1 %, Morocco’s by 7 %. (All percentages shown correspond to the period between 1 February 2020 and 1 February 2021.)

Other elements are instrumental in drying up the financial resources available for the DCs, alongside a rise in expenditure (to deal with the pandemic) and a fall in revenue. With instruments of monetary control conveniently placed where they can “do no harm” by the International Financial Institutions (IFI), and their structural adjustment policies, the DCs are suffering major capital flight. In 2015, the Global Financial Integrity think-tank estimated illicit financial flows leaving the countries of the South at between 438 and 600 billion dollars per annum, i.e. 20 % of the total external public debt of the countries of the South.14 For Africa alone, UNCTAD estimates that illicit financial flows represent an annual loss of 89 billion dollars, which is the equivalent of Official Development Assistance and Direct Foreign Investments combined.15 The shortfall is so great that Africa and many other developing countries are actually net creditors of the countries of the North, all the more since these estimates are based on minimal projections.

In their quest for safe investments, investors are also likely to shun issues of sovereign bonds by the DCs in most difficulty unless they agree to an increase in interest rates and risk premiums, which will add to the already heavy bill for debt repayment. As for Direct Foreign Investments (DFI), UNCTAD predicts a decline of 40 %. With the closing of borders and airports, several countries have lost a significant amount of revenue related to tourism.

6. Drop in remittances from migrant families to their countries of origin

Another significant factor is the net drop in remittances from the diaspora, which have always accounted for far more funding than that provided by Official Development Assistance (ODA).16 (See Graph 4). Now those remittances mostly arrive in hard currency, enabling States to put the dollars or euros or other hard currencies towards repaying their external public debt. The fall in income for households in the South due to the reduction of the amounts they receive from family members working abroad has the effect of reducing their consumption and of automatically diminishing their ability to pay direct or indirect taxes. This will reduce public revenue and weaken their capacity to make debt repayments. It will also force already impoverished families to borrow money to survive.

Graph 4: Remittances from the diaspora and public development aid received by DCs (in $ billion )

Graph 4 compares remittances from the diaspora (in blue) to ODA (in orange) received by DCs. Over a period of 18 years, ODA has tripled in absolute value, going from 48.36 billion to 165.59 billion dollars. But in fact that increase is a smokescreen. In relative value, ODA has fallen to 0.3 % of gross national income (GNI) of contributing countries, far short of the objective of 0.7 %.17 Moreover, one has to question the quality of this “assistance”, for although it is partly donations, most of it consists of loans which may be affected to some extremely dubious uses such as border control, the costs incurred in detaining migrants or debt cancellation. Over the same period, remittances from the diaspora have been multiplied by 6.5, going from 73.95 billion to 485.27 billion dollars. In 2019, a new record was reached with 554 billion dollars remitted.18 Furthermore, to avoid paying commissions claimed by banks and firms specialized in international money transfers, a significant percentage passes through informal circuits invisible to the statistics of institutions.19 Remittances from the diaspora represent at least 3 times ODA, probably a lot more. Above all, they are indispensable income for the DCs’ populations, who often lack the means to pay for health and education expenses, and even food. Often sent in hard currencies, (dollar, euro, etc.), for the State they also constitute a significant part of the foreign exchange reserves at its disposal. Due to the COVID-19 crisis, the World Bank expects a drop of 20 % of these remittances in 2020.20 In other words, this will translate into an increase of poverty and ever greater difficulty in repaying external public debt.

7. Countries with payment difficulties

Table 2 illustrates the elements analyzed in this chapter. According to the IMF, 20 % of DCs are at present in a state of over-indebtedness. In both cases, Sub-Saharan Africa is the most affected region. Then come East Asia & the Pacific, followed by Latin America & the Caribbean.

Table 2: List of overindebted or defaulting DCs by region 21

8. Debt against people

According to Jubilee Debt Campaign, DCs’ debt servicing amounted to 14.3% of their revenues in 2020, which meant that it had more than doubled compared with 2010. As always this average amount conceals strong disparities and tragic situations such as Gabon’s (59.5 % of public revenues), Ghana’s (50.2 %), Laos’ (31.1 %), Pakistan’s (35 %), Sri Lanka (37.5 %) or Venezuela’s (266.4 %).22 In other words, “Fifty-two countries dedicate over 15% of their revenues to debt repayment, vs 31 in 2018, 27 in 2017, 22 in 2015.”23

9. Summary

Summary of parts 2 and 3

  • A massive increase of DCs’ public debt from 2008 onward, with a huge inflow of private capital;
  • an unprecedented increase of debt in the form of sovereign public securities, most of them maturing from 2020 onward;
  • an incipient backflow of the financial resources sent from the North to the stock-markets of the South;
  • interest rates on public loans made by the South on the rise, which is likely to further compound the worsening indebtedness of DCs;
  • severe degradation of exchange terms due to the brutal and continuous fall of commodity prices accompanied by devaluation of DCs’ currencies as against the U.S. dollar;
  • COVID-19 dominating the news and uncertainty hovering over the DCs’ economies;
  • a reduction in foreign exchange reserves;
  • a fall in migrants’ remittances towards their countries of origin;
  • 10 countries in suspension of payments since 2015 and 21 countries in all. To which must be added 27 countries at high risk of over-indebtedness.

A new debt trap is closing in on countries of the South. It is high time to act.

Translated by Snake Arbusto, Vicki Briault, Mike Krolikowski and Christine Pagnoulle (CADTM)


  1. Unless otherwise stated, all data used in the graphs come from the World Bank website.
  2. Source: indexmundi, accessed 4 December 2020. www.indexmundi.com
  3. According to the latest data available on the World Bank website. No data for 2019 for low-income countries.
  4. Gerard Le Puill, « Speculations permanentes sur les matières premières » (Permanent speculation on commodities), (in French only), L’Humanité, 26 June 2019. www.humanite.fr
  5. “State of commodity dependence 2019”, UNCTAD, p.25-30. Nc = not communicated. unctad.org
  6. These are Argentina, RDC, Gambia, Grenada, Mozambique, São Tomé and Principe, South Sudan, Venezuela and Yemen.
  7. These are the WB’s IDA countries. See ida.worldbank.org
  8. See World Bank, “COVID 19: Debt Service Suspension Initiative” (data updated every week) www.worldbank.org, See also Milan Rivié, “6 months after the official announcements of debt cancellation for the countries of the South: Where do we stand?” 18 September 2020 at www.cadtm.org
  9. See among other references, Camilla Hodgson, “Moody’s clashes with UN over G20 debt-relief efforts,” Financial Times, 21 July 2020; also, in French, Aurélie M’Bida, « Dette africaine : Moody’s face aux foudres de l’ONU et de la Banque mondiale », Jeune Afrique, 22 July 2020 at www.jeuneafrique.com and Nelly Fualdes, «Dettes africaines: pourquoi les prêteurs privés se rebellent», Jeune Afrique, 18 May 2020, at www.jeuneafrique.com (all in French).
  10. See Éric Toussaint, “The Capitalist Pandemic, Coronavirus and the Economic Crisis,” 19 March 2020. www.cadtm.org
  11. See among other references Éric Toussaint, The Credit Crunch is Back and the Federal Reserve Panics on an Ocean of Debt, 25 September 2019, www.cadtm.org
  12. Éric Toussaint, «COVID-19: changer radicalement le financement public », france.attac.org (in French only)
  13. Gilbert Achcar, Dans le tiers-monde, un « grand confinement » dévastateur, Le Monde Diplomatique, November 2020, à : www.monde-diplomatique.f
  14. See Global financial integrity at gfintegrity.org
  15. See UNCTAD’s report on economic development in Africa, 28 September 2020 at unctad.org
  16. See blogs.worldbank.org
  17. See CNCD-11.11.11, 2020 report on Belgian development aid, September 2020, www.cncd.be (in French only).
  18. World Bank, “World Bank Predicts Sharpest Decline of Remittances in Recent History”, press release on 22 April 2020, www.worldbank.org
  19. See Léonce Ndikumana and James K. Boyce, Africa’s Odious Debts: How Foreign Loans and Capital Flight Bled a Continent, London: Zed Books, 2011.
  20. See note 17.
  21. “List of LIC DSAs for PRGT-Eligible Countries. As of November 25, 2020”. Accessed 4 December 2020. www.imf.org
  22. “Debt data portal,” Jubilee Debt Campaign. Accessed 4 December 2020, data.jubileedebt.org
  23. Gilbert Achcar, op. cit.
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