Countries in debt crisis cut public spending in the face of soaring prices

New figures released this week by anti-poverty campaigners Debt Justice show countries in debt crisis are set to spend less in 2023 than in 2019, despite the urgent need for public spending in response to soaring food prices and fuel. Low-income countries with the highest debt payments have seen public spending fall by an average of 3% between 2023 and 2019.

Increased public spending on essential services and infrastructure is essential to respond to soaring food and energy prices, the climate crisis and other national needs, but the absence of effective mechanisms Debt relief requires countries to cut public spending in order to pay down their debt.

The Debt Justice research is published ahead of an inquiry by the UK Parliament’s International Development Select Committee into the debt crisis in low-income countries. The UK has significant power to involve private lenders in debt relief measures since 90% of the bonds of countries eligible for the G20 debt relief program are governed by English law.

The G20 created a new debt relief scheme, called the Common Framework, at the end of 2020, but none of the countries that have requested it have yet had their debt cancelled. Private creditors could reap significant benefits from their loans to low-income countries if they were repaid in full.

Tess Woolfenden, Senior Policy Manager at Debt Justice, said:

“Low-income countries are being forced to prioritize debt repayment over public spending on health or access to food, at a time when spending is so urgent. The UK must act to ensure that private lenders are involved in debt relief. Debt repayments to wealthy lenders must not take precedence over people’s needs in these times of multiple crises.”

Abu Bakarr Kamara, coordinator of the Budget Advocacy Network in Sierra Leone said:

“With Ebola and Covid-19, Sierra Leone has faced two major health crises in recent years, which have collapsed the health sector and the economy. Yet paying the debt takes away vital resources for recovery Sierra Leone’s debt cancellation is a tool to help the government increase its fiscal space to invest in the health sector in a transparent and accountable manner.”

Debt Justice, formerly Jubilee Debt Campaign, is a UK charity working to end poverty caused by unjust debt through education, research and campaigning. It works closely with church groups who have long called for Jubilee cancellation of debts of low-income countries: https://debtjustice.org.uk/