The Problem of Private Sector Debt and Coronavirus in Developing Countries

This recent report by Global Justice Now highlights the increasing role of private sector companies in providing loans for development to developing countries.

Some of these loans often have quite significant interest rates, as you can see from this chart – the longer the loan term, the higher the interest rate:

NB the institutions holding these bonds (hence giving out loans effectively) are some fairly big name financial institutions, such as Goldman Sachs, Black Rock and HSBC.

There’s nothing particularly unusual about countries taking out loans for development, and the kind of interest rates above are not a problem IF GDP/ GNI can grow at a similar percentage to the loan interest rate – which has been the case in the above countries for the last several years.

The problem now is that with Coronavirus all countries have taken a hit to their GPDs, and growth rates globally have plummeted to around 0% – so now countries such as Kenya are in a situation for at least the next year where they have to pay all of that interest on their debts but without the growth the expected.

The problem with the loans coming from private sector companies is that they are less likely to offer debt relief (like a cut in interest rates) compared to public or aid agencies.

NB – these loan repayments aren not small, Kenya spends a similar amount of its health care system compared to its debt payments.

Relevance to Global Development

This seems to be yet another example of how Coronavirus is going to lead to increasing inequality – the Corporations continue to get their interest payments while the poor countries struggle with a declining GDP.

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