Russia-Ukraine War: Buhari’s Aides Seek Debt Relief, More Rapid Loans for Developing Nations

•Want int’l financial architecture rejigged

Ndubuisi Francis in Abuja

Two presidential aides, Dr. Adeyemi Dipeolu and Louisa Chinedu-Okeke, have called on the multilateral financial institutions and the global community to see the ongoing Russia-Ukraine war as an exogenous shock to developing countries deserving of support to help weaker nations weather the storm.

Dipeolu is the Special Adviser to President Muhammadu Buhari on Economic Matters, while Louisa Chinedu-Okeke is Special Assistant to the President on Finance.

In an article captioned, “Sovereign Debt Sustainability in Developing Economies: The Imperative of Global Action,” which was published by the International Banker magazine, the presidential aides said the shock unleashed by the war called for urgent steps to offer debt relief to emerging markets and developing economies (EMDEs), provide them with more rapid loans under less stringent conditions and issue another large allocation of Special Drawing Rights (SDRs).

The presidential aides argued that as a result of the war in Ukraine, the International Monetary Fund (IMF) had reduced its projections of growth in EMDEs by a full percentage point, adding that a worsening of the situation may result in another global slowdown.

“This being the case, there is no reason why urgent steps should not be taken to offer debt relief to EMDEs, provide them with more rapid loans under less stringent conditions and issue another large allocation of SDRs.

“This being the case, there is no reason why urgent steps should not be taken to offer debt relief to EMDEs, provide them with more rapid loans under less stringent conditions and issue another large allocation of SDRs,” they said.

The IMF had last year issued SDRs which are international reserve assets, totaling $650 billion to help mitigate the impact of the COVID-19 pandemic especially on poor countries.

Nigeria benefited from the SDRs to the tune of $3.4 billion.

Dipeolu and Chinedu-Okeke also alluded to a looming debt crisis in the EMDES and called on the international community to reconsider the existing financial architecture in a manner that helps to prevent or manage the emerging global debt crisis.

The presidential aides explained that the looming crisis had the potential to create widespread economic distress for a majority of the world’s population.

 “If this was not clear before, it has certainly become clearer after listening to the Managing Director of the IMF, Kristalina Georgieva. At her press conference at the 2022 Spring Meetings of the IMF and the World Bank Group, she stated that 60 per cent of low-income countries are “at or near debt distress” and at least 20 African countries fall into this category.

“The situation in Sri Lanka shows just how fraught the situation is becoming. In April 2022, roughly two years after the onset of the COVID-19 pandemic and about two months after the start of the Russia-Ukraine war, Sri Lanka announced a temporary default in foreign-debt repayments amidst a severe economic crisis.

“Inflation has surged, the currency has been devalued, commodities are in shorter supply and citizens have taken to the streets in mass protests. Sri Lanka has a total of $4 billion in repayments falling due within the year, while its foreign reserves are $1.93 billion.

“It claims to have been consistent in servicing its debt until recent global events affected its finances. As a result, it is calling for restructuring its debts and will likely need additional loans to revive its economy,” they said.

They added: “This is just one of many emerging markets and developing economies on the verge of a debt crisis. Sri Lanka maybe one of the more severe cases, but its condition does underscore the scale and severity of the situation of many developing countries, with different situations depending on the currency and composition of debt and national fiscal space.”

According to them, given the number of countries facing these challenges, a significant portion of the world’s population was at risk of falling into poverty, stressing that at best, a debt crisis of this magnitude threatens economic recovery in EMDEs.

They noted that even of greater worry is that it is a harbinger of serious economic distress and, ultimately, global instability, adding that this is why debt sustainability in developing countries has become an urgent concern, requiring proactive measures to avert a new global debt crisis.

The presidential aides stressed that several factors had contributed to creating this troubling situation, noting that prior to the COVID-19 pandemic, alarm bells had already begun to ring about rising debt levels in developing economies.

For instance, they cited the United Nations Conference on Trade and Development (UNCTAD), which reported that the total debt service on external debt in the least developed countries rose from $33 billion in 2019 (pre-pandemic) to $50 billion in 202, adding that each figure is a far cry from $10 billion in 2013.

“The economic fallout of the COVID-19 pandemic created a difficult situation for countries that were already economically vulnerable due to their limited ability to raise resources domestically as well as huge debt repayments.

“During the pandemic, countries took on additional debt to provide some level of stimulus to their hard-hit economies. But the troubling thing about the increased debt burden of developing countries is not only the increase in debt-service payments.

“There is also the fact that the situation could have been much worse if not for interventions that provided some assistance, such as debt relief, payment suspension and provision of liquidity.

“For instance, in addition to being relatively flexible in terms of disbursements under the Rapid Financing Instrument (RFI), the IMF also issued $650 billion worth of SDRs (Special Drawing Rights), which helped to some extent in improving the external balance situation of many developing countries,” they pointed out.

Expressing concern over the recent global events which have further worsened the debt situation, they stated that the war in Ukraine was causing ripple effects around the world, with rising food, fuel and fertiliser prices leading to inflation as well as causing balance-of-payments pressures.

This, they stressed, was also coming at a time when supply-chain disruptions caused by the COVID-19 lockdowns were yet to fully abate, especially as there are continuing COVID-19 lockdowns in China, which they described as “the factory of the world.”

According to them, the increasing use of food-export bans across the world to mitigate the effects of rising food prices is further complicating the situation.

The Buhari aides said the rising inflation was likely to lead to a tightening of monetary policy in the United States and other advanced economies, with the resulting higher interest rates most likely to trigger capital outflows and increase the costs of servicing debt.

Put together, they explained that this set of factors were likely to precipitate a debt crisis that would further widen the inequality gap between advanced and developing economies.

They observed that with higher borrowing and financing costs increasing their debt burdens, developing economies might need to undertake fiscal-austerity measures, including spending cuts, to meet their debt-financing obligations.

Such measures, on the other hand, tend to create economic and social upheaval, they further said.

With these realities and more staring the world in the face, they said the natural question that followed was how best to support EMDEs in managing their debt obligations sustainably.

They proffered some actions to tackle the growing trend, including the international community using some of the measures adopted during the COVID-19 to help manage the situation, and re-thinking of the international financial architecture in a manner that helps to prevent or manage the emerging global debt crisis.

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