In the first three parts we have observed the evolution of the DCs’ external debt over the last twenty years. The first part shows a dramatic increase of indebtedness, which multiplied by 2.5 with a steep acceleration from 2008 onward. The second part highlights the main threats on the DCs’ external debt, among which the growing significance of bonds, the evolution of interest rates and the depreciation of their currencies against the U.S. dollar. The third part examines the various factors that lure DCs into the debt trap: dependence on commodities, drop in foreign exchange reserves, inflating repayments, conjuncture of a multi-dimensional crisis aggravated by the COVID-19 pandemic, etc.
We deepen our analysis by focusing on various regions. After Latin America and the Caribbean and Sub-Saharan Africa, we continue with the Middle-East and North Africa (MENA).
Graph1: Comparison between borrowed and repaid amounts per year (long-term total external debt–in billions of US$)
This graph compares borrowed amounts (in orange) and repaid amounts (in blue–also called debt servicing) per year on long-term total external debt.
Graph 2: Comparison of the evolution of total debt stock with net transfers (long-term total external debt–in billions of US$)
Echoing table 1 in our first part, graph 1 compares borrowed amounts (in orange) and repaid amounts (in blue–also called debt servicing) on long-term total external debt per year. Graph 2 presents the evolution of the debt stock (in orange–scale on the right) and of net transfers (in blue–scale on the left).
As formerly mentioned, from 2000 to 2006, debt servicing outreached borrowed amounts while the debt stock increased only moderately. Net transfer was generally negative. In the following period from 2008 to 2019 net transfer became positive. We notice an exception in 2015, when commodity prices plummeted. On the whole both debt stock and debt servicing have increased dramatically.
2. Middle-East and North Africa (MENA)
In 2019, the population of the Middle-East and North Africa was 456 million, of which 389 million live in 13 DCs.
- 2 low-income countries: Syria, Yemen
- 11 middle-income countries: Algeria, Djibouti, Egypt, (Iraq), Iran, Jordan, Lebanon, (Libya), Morocco, (Palestine), Tunisia1
Eight high-income countries (not listed as developing countries): Saudi Arabia, Bahrain, Israel, United Arab Emirates, Kuwait, Malta, Oman, Qatar.
Note that the WB classification is questionable. However, we have decided to use it so that we can make use of WB data. The countries in brackets are not included in WB debt data although Syria and Yemen which are both going through wars are included.
For a critical approach to the categories used by international institutions, see: ‘South/North / Developing Countries/Developed Countries–What is it all about?’ www.cadtm.org
2.1. Progression of public foreign debt and net transfers
Graph 3: Comparison of the evolution of total debt stock by category of creditors (in billions of US$)
In the graph above, we can see the two stages previously referred to, with a reduction of debt from 2004 to 2006 corresponding to an increase in revenue along with an increase in commodity prices. From 2006 onward, public external debt increased moderately before spiralling out of control from 2008. We may also distinguish four categories of creditors:
- in blue: bilateral creditors (loans between States);
- in yellow: multilateral creditors outside the IMF (loans from international financial institutions such as the World Bank and Development Banks);
- in red: loans from the IMF;2
- in green: private creditors; (dark green, loans on financial markets as sovereign bonds mostly sold on Wall Street; khaki, bank loans; light green, loans from other types of private creditors).
Graph 4: Comparison between the progression of the total debt stock and of the net transfers on the public external debt in MENA (in $billion)
Remember that net transfer refers to the difference between what a country receives as loans and what it pays out in debt servicing (capital and interests included). If the amount is negative that country has paid out more than it has received.
In the graph, columns in orange refer to net transfer.
From 2000 to 2019, the region’s public external debt doubled; however not in the same manner for all the MENA countries. Algeria for example is among the ten least indebted countries in the World owing less than $5.5 billion in 2019, that is 3.3% of its GRP (see Box); while others sank deeper into a permanent debt crisis.
Over these two decades several countries have drastically reduced their foreign debt either by choice, such as Algeria (-94%), because of sanctions, such as Iran (-93%) or a period of conflict such as in Syria (-23%). Consequently, these countries have seen their net transfers become markedly negative (Algeria -US$ 34 billion; Iran -US$ 11 billion and Syria -US$ 1.4 billion). Others have seen their levels of debt increase enormously. If Western capital inflows (2008-2019) and outflows (2000-2008) must be taken into account (as described in part 1) with commodity price fluctuations (as described in part 3) as in the case of Morocco (+111%), new debts were also granted by the International Financial Institutions (IFI), particularly the IMF, after the Arab Spring in order to continue paying the existing odious debt and applying neoliberal policies. (Tunisia + 168%; Egypt + 270%). Three other countries have sunk into a crisis of permanent debt (Jordan + 176%, Lebanon +378%, Djibouti + 801%). Except for Lebanon, these five countries have returned to a positive net transfer position as from 2011.
Box: The case of Algeria and other commodity exporters: suggested alternatives
|High income from oil has been used to repay foreign debt. Although at first sight this appears to be quite commendable, it would have been much better to invest in satisfying the needs of the population and reducing dependency on imports for other commodities. The Algerian leaders preferred to repay the creditors, thereby both enriching the creditors and themselves, as the creditors pay them secret commissions. The Algerian regime continued, and even increased, their debt pay-outs hoping to show docile compliance to the Western powers. If a popular government had emerged from the massive movement against the regime it should have carried out other policies as described in “Once upon a time there was a popular government that wanted to do away with the export-oriented extractivist model”.
Some new directions: Start an energy transition away from fossil fuels and the development of renewable resources such as solar, wind and hydraulic. To limit global warming and to save the planet there is not doubt that measures taken by any State, no matter how rich, will be insufficient. Regional cooperation is necessary to set the example to be followed.
In the longer term, an industrial structure capable of replacing imports, including of semi-manufactured products, must be developed.
The government must radically adopt measures to assure food sovereignty such as providing support and assistance for local producers, and preferring the development of organic products rather than the use of chemical fertilizers. Smallholder structures may give the best results in this domain. Of course, human-scale cooperatives and other structures are also to be developed on a voluntary basis and self-managed. Not to forget regulating access to hydraulic resources in order to achieve a fair and equal sharing between agricultural and other sectors.
The government must also ensure that a free public transport network is set up throughout the countryside to enable small-scale farmers, often women, who produce most of the world’s food, to transport their produce to urban markets and no longer depend on private intermediaries who charge high commissions. Rural populations will thus gain emancipation through easier access to health, education, resources, cultural infrastructures and freedom of movement.
In order to reduce dependence on the financial markets and vulnerability to speculation on a State’s currency, a series of bold measures must also be taken to withdraw from the debt system and cut links with the international financial institutions. An audit of the public debt must be carried out to determine the illegitimate, odious or illegal parts, with a view to their repudiation imposed with the support of the population, in a unilateral and sovereign manner, on the basis of international legal texts. A moratorium must immediately be declared on the repayment of this debt without late payment penalties. Structural adjustment policies must be abandoned and the State must withdraw from free trade agreements. It should definitively leave the IMF, the World Bank and the WTO, and encourage other partner countries to do likewise. It should determine the ecological debt due and demand its payment from the big multinational corporations. It should seek legal rulings to expropriate any dictatorial regime’s ill-gotten gains and obtain their retrocession without compensation. It should reinstate controls on the movement of capital and introduce heavy taxation on the profits of the transnational companies and the wealth of the big fortunes. It should resocialize the privatized institutions and public services, socialize and decentralize the banking and energy sectors.
In contrast to what is currently practised for disadvantaged populations, the socialization of the banking sector would make it possible to finance microcredit loans for small family or personal businesses at zero interest, allowing the improvement of production conditions and the realisation of local projects.
To put an end to illegitimate private debt, the government will also have to take concrete measures to promote a clear improvement in the income of the working classes, the generalization of social policies, public services and free housing programmes, and subsidising the prices of basic necessities. Indeed, debt has been used for millennia as a mechanism to dispossess peasants of their land, to dispossess artisans of their tools, to dispossess working-class families of their housing. The system of illegitimate private debt usually involves the imposition of conditions for borrowing and repayment that make repayment impossible. This leads to dispossession and/or long years, even decades, under the burden of repayments. The government must legally put an end to the mechanisms that keep their people under the yoke of debt.
Although the numerous social claims, as from 2006, delayed capital investments in the MENA region by three years, the same tendencies are observed as in other developing countries. An earlier period showing a generally stable foreign debt situation with negative net transfers is followed by a period showing a complete reversal of the situation. Between 2000 and 2011, the net transfer is negative (-$67.23 billion), equal to 4% of the total GRP in 2011, after which, the balance became positive for eight years (+$20.13 billion).
In 20 years, 60% of the DCs in the region, that is eight countries, have called on the IMF for funds. They have borrowed $35 billion, and have since reimbursed $13 billion, of which 15% is interest and servicing charges. Among the most implicated are Egypt, Lebanon and Tunisia.
Similarly, if the evolution of the public external debt of the MENA DCs by category of creditors roughly coincides with that of the DCs as a whole, it nevertheless includes certain specificities. Formerly the greater part, the bilateral share now represents only one quarter of the public external debt. The multilateral share has gained in significance: in absolute figures, it multiplied threefold between 2000 and 2019 (including the IMF credits which multiplied more than sixfold). In this interrelated structure, the share in the form of sovereign securities (bonds) has grown considerably, now representing one third of the total. In absolute figures, the total amount of sovereign bonds or securities has increased tenfold (from $7.32 billion to $77.96 billion). These sovereign securities are traded on the financial markets, almost exclusively Wall Street, from 2008 onward.
Table 1: Evolution of MENA countries public external debt by category of creditors between 2000 and 2019, in absolute and relative value
|In US$ bn||In %||In US$ bn||In %||In US$ bn||In %|
Also, Djibouti is in an over-indebted situation and one in three of the DCs of the region have suspended payments.
|DCs’ public external debt in 20à0: US$ 116 billion
DCs’ public external debt in 2019: US$ 236 billion
DCs in the region with a high risk of over-indebtedness in February 2021: Djibouti
2.2. MENA and commodities
The region’s export revenues are highly exposed to commodity market fluctuations.
Although not the most commodity-dependent region, 13 countries (at all levels of income) remain highly exposed to fluctuations in commodity prices and export revenues. Agricultural products and fossil fuels are the most concerned (see Table 2). In particular, 7 of the 13 members of the Organization of Petroleum Exporting Countries (OPEC) are MENA countries.3 Faced with the prolonged decline in oil prices, OPEC countries have agreed several times to limit production in order to push prices up.
Table 2: Commodity export dependence of MENA countries4
|Agricultural products||Fossil fuels||Ores|
3. Arab Emirates
8. Saudi Arabia
2.3 Fluctuation of exchange rates against the Dollar and the Euro
In the period between 1st March 2020 and 1st January 2021, countries of the region had their currencies sharply depreciated against the U.S. dollar and the euro, i.e. the main foreign exchange reserves. Dollar exchange rate progressions: Morocco +8.40%; Libya +6.14%; Tunisia +5.71%; Algeria -9.04% and Iraq -18.49% were subject to the widest variations. A certain number of countries remained stable such as Iran +0.17%, Syria +0.39%, Yemen -0.06%, Egypt -0.68%. The currencies of Djibouti, Jordan or Lebanon are indexed to the dollar and so did not change. On the other hand all other MENA currencies depreciated between -3.03% (Morocco) and -27.09% (Iraq).
2.4. Debt servicing progression
Graph 5: Debt service for MENA region DCs ($US billion)
In 2019, 46% of MENA DCs (Djibouti, Egypt, Jordan, Lebanon, Morocco, Tunisia) paid out more to service debt than was spent on health care. Debt servicing by these ten countries absorbed between 10.6% and 41.2% of States’ revenue.5
In the space of two decades, the region’s debt service has nearly doubled, from US$15.12 billion to $28.65 billion after having passed a peak in 2006 when oil prices were high. At that moment Algeria made advanced repayments to its Paris club creditors.6 The high increase in debt servicing observed as from 2018 is the effect of an IMF conditioned loan of $12 billion, granted in 2016, to Egypt.7
3. The socioeconomic context
Around the end of 2010 and early 2011 the region went through a wave of uprisings against established dictators and neoliberal domination by the IFIs. The new governments followed the same neoliberal policies financed by more borrowing. The same policies that deteriorated the populations’ living conditions led to another wave of protestation throughout the region starting in October 2019.
The impact of the Coronavirus crisis will further deteriorate the social conditions of the working class, especially those most vulnerable: women, children, youth, the elderly and refugees. The economic downturn caused by the pandemic is pushing an additional 8.3 million people in the region into poverty.8
The MENA region has the highest rate of youth unemployment in the World (averaging over 27%) where the unemployment rate for young people is five times that for adults with 80% of them reduced to informal-sector work which is very poorly paid.9 In Tunisia, in 2021, the unemployment rate is overwhelming, (a principle cause of the December–January 2011 protests) especially for the young in the hinterland where unemployment rates often rise to 40%. These are the young Tunisians who invaded the streets of Tunis in January 2021 on the tenth anniversary of the 2011 revolution.
COVID-19 has further widened the wealth gap between rich and poor in MENA countries, which already appears to be one of the most unequal regions in the world: 37 billionaires possess as much wealth as the poorest half of the adult population.10 The Middle East appears to be the most unequal region in the world, with the richest 10% capturing 64% of income, compared to 37% in Western Europe, 47% in the U.S. and 55% in Brazil.
According to Piketty, Alvaredo and Assouad, the richest 1% in the Middle East capture a much larger percentage of income than in other regions or countries: “The income share of the top percentile is about 30% in the Middle East, compared to 12% in Western Europe, 20% in the United States, 28% in Brazil, 18% in South Africa, 14% in China and 21% in India”.11
The World Bank estimates that for the whole MENA region the cost of the Coronavirus pandemic is about $116 billion, about 3.7% of the region’s GRP.
The IMF has indicated that boosting growth may require financing beyond the substantial $170 billion envisaged for 2021, adding to the already high financing needs of some of the countries.
Governments in the region have decided to borrow their way out of the financial aspects of the crisis. The region has entered a new wave of indebtedness and pursuit of neoliberal policies.
As in other regions of the World, public foreign debt has greatly increased in the MENA region. The economic crisis makes the normal course of repayments much more difficult. The two massive waves of popular revolt known as the “Arab Spring” were the natural outcomes. Under these circumstances it is totally justified to suspend debt repayments and to repudiate illegitimate debts.
Numerous social movements in the Arab countries have called, in April 2020, for debt cancellation and withdrawal from free-trade treaties in order to confront the repercussions of the economic crisis and the Coronavirus pandemic.
The appeal was signed by over 100 associations, organizations and networks in Algeria, Egypt, Iraq, Jordan, Lebanon, Mauritania, Morocco, Palestine, Sudan and Tunisia. They include peasants’ rights organizations, anti-debt associations, political parties, research centres, coalitions, trade unions, student and women’s organizations and associations for people with special needs, and others.
The appeal was also supported by more than 100 associations, organizations and networks from Africa, Asia, Europe and Latin America in eight languages.
Further articles in this series will examine the tendencies of the debt burden in other large regions of Asia.
- Evolution of the external debt of developing countries between 2000 and 2019
- The external debt of Developing Countries: a Timebomb
- Developing countries in the stranglehold of debt
- Latin America and the Caribbean are facing a serious debt crisis
- An unsustainable burden of debt afflicts the peoples of Sub-Saharan Africa
Translated by Snake Arbusto, Vicki Briault, Mike Krolikowski and Christine Pagnoulle (CADTM)
- ↩ The region includes 21 countries. Those in brackets are not included in WB debt- related data.
- ↩ Although it is also, a multilateral creditor, the IMF is not included in the WB data base.
- ↩ www.opec.org
- ↩ UNCTAD, State of commodity dependence 2019, p. 3-4.
- ↩ jubileedebt.org.uk
- ↩ See: Olivier Bonfond, « L’Algérie se désendette, mais à quel prix ? », 17 septembre 2006. At: www.cadtm.org (in French only)
- ↩ See ENADED,”The Egyptian Network for the Abolition of Debt and the Right to Equitable Development“(ENADED)
- ↩ United Nations Economic and Social Commission for Western Asia (ESCWA).. April 2020. news.un.org
- ↩ OECD: www.oecd.org 6 November 2020.
- ↩ Oxfam: “For a Decade of Hope Not Austerity in The Middle East and North Africa”, August 2020.
- ↩ Thomas Piketty, Facundo Alvaredo and Lydia Assouad, “Measuring lnequality in the Middle East 1990–2016: The World’s Most Unequal Region?” – AAP2019RIW.pdf published in 2018, piketty.pse.ens.fr consulted on 21 March 2021