An additional 165 million people have been pushed into extreme poverty in the world’s poorest countries after a succession of economic shocks since the Covid pandemic, according to the United Nations.
In a report highlighting the “human cost of inaction”, the UN Development Programme (UNDP) said low-income countries urgently needed breaks from their debt repayments to cushion the blow from soaring borrowing costs.
The sharp increase in borrowing costs means more than 20% of the world’s population – 1.6 billion people – now live on less than $3.65 (£2.78) a day and are struggling to put food on the table.
Calling on western governments to take action, the UNDP said a “debt-poverty pause” was required to redirect repayments towards critical social expenditures, adding that a failure to do so would add to the worsening poverty crisis.
Many low-income countries have borrowed heavily to help cope with the pandemic and soaring costs for food and fuel, exacerbated by Russia’s invasion of Ukraine hitting agricultural commodity supplies and pushing energy prices close to record levels.
Meanwhile, debt servicing costs are rising sharply as the world’s most powerful central banks drive up interest rates in response to soaring inflation.
The UNDP, which is based in New York, said debt service payments have steadily been consuming a larger and larger share of public revenue and expenditure in developing economies, limiting the headroom for spending on vital services.
Compared with the average high-income country, the latest data suggests the average low-income country devotes between double and triple the share of government revenue or expenditure on servicing interest payments.
The UNDP estimates 25 low-income countries spent more than 20% of their revenues on debt servicing last year – the highest number over that threshold since the turn of the century – and said this could rise further if global interest rates continued to accelerate.
Achim Steiner, the UNDP administrator, said 46 countries paid more than 10% of their general government revenue on debt interest. “Debt servicing is making it increasingly harder for countries to support their populations through investments in health, education and social protection,” he said.
“Countries that could invest in safety nets over the last three years have prevented a significant number of people from falling into poverty. In highly indebted countries, there is a correlation between high levels of debt, insufficient social spending and an alarming increase in poverty rates.
“There is a human cost of inaction in not restructuring developing countries’ sovereign debt. We need new mechanisms to anticipate and absorb shocks and make the financial architecture work for the most vulnerable.”
Next week, finance ministers from the G20 group of countries will meet in India, with the focus being on global health, sustainable finance and tackling poverty.
A report this week showed almost 30% of the $92tn of government debt in the world is owed by developing countries. Escalating borrowing costs and a stronger US dollar are making loan repayments and finance raising significantly more expensive for dozens of developing countries.
Late last month the World Bank proposed that poor countries should be able to pause their debt repayments if hit by climate disaster.
The UNDP said a pause in repayments, in the short run, would allow countries weighed down by debt to mitigate some of the social effects from economic shocks by using resources that otherwise would have to be used for debt servicing.
George Gray Molina, the chief economist at the UNDP, said such a measure could help countries to stabilise their financial position and help prevent a “freefall” into poverty.
“This is the beginning of a new adaptive social protection architecture to prepare for a future prone to shocks,” he added.
