How debt relief could help reverse devastating consequences of UK aid cuts
youK-led Action to tackle spiraling national debt in some of the world’s poorest countries could more than offset the impact of aid cuts in the UK and deliver net funding gains in water, sanitation, education and health, new research has found.
A year ago this week, the UK announced plans to cut its aid budget by 40 percent, from 0.5 to 0.3 percent of Gross National Income (GNI). This decision is expected to result in 2.9 million fewer children attending school, 12 million more people lacking access to clean water and sanitation, and more than 600,000 deaths from preventable diseases. According to research conducted last year.
At the same time, many of the world’s poorest countries have been plunged into debt distress in recent years; low-income countries currently spend 100 percent on average. 18 percent This rate, which was only 5 percent in 2014, constitutes 5 percent of the state revenue allocated to foreign debt every year.
Approximately 3.3 billion people worldwide currently live in the following countries: spend more in debt payments rather than education and health. Independent there is also reported Poor countries are now paying billions of dollars more to pay off their debts than they receive in aid to combat the climate crisis.
Now there’s a new analysis based on the research, produced by the charity CAFOD. University of St Andrews And Save the Children and only shared with: Independent – It finds that the devastating impact of aid cuts in the UK could be more than offset by debt relief, effectively enabling developing states to partially cancel or restructure their debt.
The analysis finds that if debt servicing costs for low-income countries were reduced to a “more sustainable level” of around 10 percent, there would be enough fiscal breathing room to achieve major gains in health, education, water works and sanitation.
While 12 million people will lose access to water and sanitation due to aid cuts, according to Save the Children, cutting debt payments to 10 percent could provide clean water to 11 million people and basic sanitation to 23 million, helping solve the problem, according to the latest analysis.
The 2.9 million people pushed out of education by benefit cuts in the UK will be more than compensated by an additional three million children who could be funded to enroll in school if debts are cleared.
Health disruptions could also be significantly mitigated, preventing the systemic collapse predicted by the World Bank and saving around 43,500 lives per year.
“Children are paying the price for unsustainable debt. Getting debt payments to a truly sustainable level, with fiscal breathing room to absorb any future climate or economic shocks, is crucial to ensuring governments can invest in their people,” says Lydia Darby, senior financial advisor at Save the Children. Independent.
“Services critical to children’s survival and well-being, including health, nutrition and education, would benefit greatly if less money was spent on unsustainable debt.”
Sandra Martinsone, director of policy and advocacy at the charity Bond, adds: “More than fifty of the world’s poorest countries are now facing the worst debt crisis in history, and marginalized communities continue to bear the brunt of conflict and climate shocks.
“Failure to resolve this debt crisis will cost more lives and undermine hard-won progress towards a more prosperous and stable world for us all.”
UK-led action to ease debt ‘key’
Designing effective debt relief programs will be a complex task, given the diversity of creditors available to Western governments and developing countries, including China. This, as well as many private financial institutions charging higher interest rates, like Independent had previously reported.
But campaigners argue the UK has a unique role in using legislation to take forward debt relief. 45 percent of government debts are subject to British lawAs a result of the City of London’s importance as a global financial centre. This share rises to 90 percent when only debt-laden developing countries are currently eligible for debt relief. G20 Common Framework – the existing multilateral debt relief system – is taken into account.
Parliament’s Select Committee on International Development itself has revealed that the UK government has a significant role to play in supporting debt relief.
Recognizing that there is “limited scope” for the United Kingdom to unilaterally cancel or provide debt relief due to the number of public and private creditors around the world, 2023 debt report The UK government should consider new legislation that would force creditors to take part in debt relief schemes if a majority of creditors agree, he told the Committee.
Later government Rejected the committee’s recommendation and instead supported “market-based solutions.” The current Labor government is also Following market-based methodscurrently with a debt relief group called the London Coalition voluntarily seeking debt relief.
For Maria Finnerty, CAFOD’s chief economist, this is not good enough.
“With an increasing number of countries in debt distress, we can only limp along for so long without a functional debt relief process. Sooner or later, something will have to change,” he says. “The cost to the UK Treasury is zero. The benefits are immeasurable. The only scarce resource is political will.”
Earlier, in response to claims that the UK government could do more to tackle developing country debt, a HM Treasury spokesman said: Independent: “Tackling unsustainable sovereign debt is an important international priority.
“We are committed to an international financial system that supports development outcomes and helps low-income countries address their debt vulnerabilities.”
What would debt postponement look like?
While a 10 percent debt ceiling was used in CAFOD’s analysis, what debt relief would look like in practice is still open to debate.
An earlier global debt relief campaign (Jubilee 2000) resulted in governments and institutions canceling the modern equivalent of more than $100 billion in debt from developing countries. However, the more complex creditor environment this time around means the demands of the current campaign are more complex.
One option on the table is to reform the G20 Common Framework, the current debt relief mechanism developed in the wake of the Covid-19 pandemic. It was widely criticized for moving too slowly (delays deterred investors, weakened currencies and worsened economic crises) and did not include binding timelines that would force lenders to act quickly. These concerns mean that few countries have so far embarked on debt relief, campaigners say.
Last year the African Union published Lome Declaration – named after the capital, Togo, where the leaders met – which speaks to how they believe the Common Framework can be reformed. This includes calls for increased transparency, a suspension of debt payments for all debtor countries that apply for debt restructuring, and new programs that could see countries have their debt forgiven in exchange for action on climate or nature.
Other more ambitious options for debt relief that could be considered, according to CAFOD’s Finnerty, include a new UN Framework on debt restructuring. implemented for global tax cooperation – and also the International Bankruptcy Court for countries.
“The restructuring of debts must ultimately be decided by independent judges,” he says. “For example, it would be crazy if every time a company went bankrupt we told them they had to make separate deals with each of their creditors. This should be no different for countries.”
Campaigners we spoke to acknowledge that an effective debt relief effort is likely to take several years, with the UK’s 2027 G20 Presidency often held up as the moment when a new debt relief program could be rolled out.
But while the specific results of the debt relief campaign remain unclear, there is one thing that applies to everyone. world famous economistsG20 governments and most of the world’s leading financial institutions seem to agree that something must be done to change the status quo on developing countries’ debt if they are to have any chance of financing public services and becoming self-reliant in the long term.
This article was produced as part of The Independent. Rethinking Global Aid project
