Developing countries need about $1 trillion in debt canceled to free up funds to fight the coronavirus pandemic and avert a massive debt crisis, the United Nations said.
Immediate payment waivers coupled with a debt overhaul will help countries stay solvent in the face of as much as $3.4 trillion in obligations due this year and next, according to the UN's trade and development agency, UNCTAD. The total debt stock of developing countries - external and domestic, private and public - stood at 191% of gross domestic product by the end of 2018.
"The Covid-19 shock only puts the spotlight on what had already been a fast-evolving sovereign debt crisis across the developing world," UNCTAD said in a report released Thursday. "The devastation it is likely to cause unless decisive action is taken, should be more than sufficient motivation for the international community to finally move toward a coherent and comprehensive framework to deal with unsustainable sovereign debt."
Calls for debt relief for poor countries have increased over recent weeks as these nations struggle with increased health-care spending needs and lower revenue due to the crash in commodity prices and economies and trade that have been shut down to curb the spread of the virus. The Group of 20 leading economies last week agreed to provide temporary debt relief valued at about $20 billion to the world's poorest countries.
While initiatives such as these are welcome because they provide urgently needed fiscal breathing space, but they do not constitute debt relief of any kind., UNCTAD said in the report. The UN has called for the creation of a global authority to help implement the temporary suspension of debt obligations from developing countries during the coronavirus pandemic and to oversee the standstills and restructuring agreements.
Argentina's proposal for a three-year debt payment moratorium and steep cuts in interest rates could be taken as an example in future sovereign restructuring, the agency said.