This article originally appeared on Gavi’s website.
Debt levels in 73 Gavi-supported countries increased by close to 50% between 2011- 2018, and governments spent almost as much on paying interest on these debts as they did on their healthcare systems. Although overall debt levels have been far from historical highs, almost a third of Gavi countries were, according to the International Monetary Fund (IMF), already at high risk of being unable to meet their debt obligations, even before the COVID-19 crisis.
A new study of debt dynamics in Gavi-supported countries reveals the extent and speed of this debt accumulation. With the economic shock caused by COVID-19 and the very significant drop in commodity prices observed in recent months – particularly oil – debt servicing may become untenable in many countries and may even jeopardise the delivery of health and other services if it crowds out government investments in the social sectors. As a result, many highly-indebted countries may seek a suspension of interest payments or outright debt relief, further expanding on the G20’s debt moratorium agreed to in April 2020.
While low-income countries (LICs) have tended to rely on credit from multilateral lenders, such as the World Bank, the IMF, and regional development banks, middle-income countries (MICs) have relied more extensively on the private sector. This could make access to borrowing, needed to respond to COVID-19 and any potential debt restructuring, if required, more complex and difficult.
Read the full article, including key findings from the study, here.