Kenneth Glad
Borrowing money usually comes with a price tag that slowly chips away at your savings. For some nations, that bill has just hit an astronomical new high. Now, a massive scramble is underway to stop the entire financial system from breaking.
The global tab for developing nations reached $9.4 trillion last year. That translates to roughly £7 trillion, according to newly released World Bank data.
Right now, the poorest countries feel the sharpest sting. They are paying the highest interest rates seen since the late 1980s.
Haishan Fu, the chief statistician at the World Bank, highlighted the core problem: “Access to international finance has improved, but the price of that finance has not.”
The statistician added: “Low- and middle-income countries are borrowing more, paying more, and, in many cases, leaving less for long-term development.”
Struggles on the ground
Last year alone, developing country debt jumped by 5.5 percent. The Guardian reported that this marks the fastest increase in four years, mostly fueled by private sector loans.
On average, the lowest-income nations face an 8.2 percent interest rate on fresh borrowing. Some countries pay far more. The Republic of Congo hits 13.88 percent and Laos reaches 11.5 percent.
This heavy financial burden steals money away from crucial daily needs. Behind the scenes, heavily indebted places struggle directly with food availability when global shocks hit.
As the World Bank report noted, high debt burdens closely tie to “a decline in the affordability of a healthy diet during periods of global stress.”
A complex new plan
Politicians in the UK now want to step in. Prime Minister Andy Burnham is linking a fresh debt initiative to the historical legacy of slavery, as the UK prepares for its G20 presidency next year.
Former leader Gordon Brown has been tasked with exploring how to change the international system. Meanwhile, UK Foreign Secretary Ed Miliband pitched a new arrangement in Bangkok.
His plan involves using multilateral development banks to buy up outstanding loans. That strategy could stretch out repayment timelines. It might also lower those crippling interest rates.
But fixing things will be much trickier today than during the massive debt forgiveness of 2005. Private bondholders now hold most of the cards, rather than government creditors.
