Least Developed Countries (LDCs) are struggling to find money to fund key interventions, including coronavirus vaccine purchases as their debt levels reach unprecedented levels.
Dr. Sarah Ssewanyana, the Economic Policy Research Centre (EPRC) Executive Director, told a United Nations virtual meeting on preparation for the fifth Least Developed Countries (LDC5) meeting, that “fiscal space is shrinking and the rate at which it is shrinking is really very high given the fact that most of our countries we see the debt to GDP ratio increasing significantly.”
She said for the Ugandan case, the debt to GDP has increased from about 18.1% to about 41% in 2019/2020 financial year. And it is projected that for 2021, public debt as a share of GDP will reach 49.9%.
“And when you look at the projections for the next five years, we see if we continue the way things are now, we will going beyond the acceptable levels of debt to more than 50% of the GDP,” she said.
Rising debt levels mean that most countries are struggling to convince lenders to give them more money.
According to the 2021 International Debt Statistics report, the total external debt of Debt Suspension Service Initiative-eligible countries climbed 9.5% to a record $744 billion in 2019 from the previous year, a sad reminder to creditors and borrowers of the need to collaborate to stave off the growing risk of sovereign-debt crises triggered by the COVID-19 pandemic.
For Uganda, the total public and publicly guaranteed external debt exposure at the end of December 2019 stood at USD 13.21 Billion. It is much more now when debt acquired upon the start of the covid-19 pandemic is factored in.
Dr. Ssewanyana said that before the Covid-19 pandemic, the government was pressed to increase spending on social services since the government had spent so much on infrastructure. This called for the need to balance between social and public infrastructure spending. Covid-19 struggles mean the government cannot go-ahead to spend on social services.
Citing the health sector, Ssewanyana said the money the country needs for covid vaccine to cover everybody is very high, and “what we have now can only go for 2.5million Ugandans.” This implies you are leaving out almost 40 million Ugandans without a vaccine.
“The only alternative that government has in this period is for it to be able to borrow but where do you borrow from?” she wondered. “We thought that possibly we can go beyond the 50% Debt to GDP ratio sealing such that we can be able to save lives.”
Susanna Wolf, the team leader LDC unit in the UN Office of the High Representative for the Least Developed Countries, expressed concern about the situations LDCs find themselves into, highlighting the fact that remittances have collapsed to many African countries, Foreign Direct Investments is down and levels of trade are down too. Revenues are down in the majority of countries as businesses collapsed on the coronavirus impact.
She estimated that more than 100m people could have fallen back into poverty.
“ODA (official development assistance) countries have to work harder and better, invent new partnerships, and redouble commitments to development effectiveness principles and extend those to finance for climate-sensitive investments,” she said although she noted that ODA is an increasingly small proportion of global finances.