Third World Debt Crisis External debt in the global South Impacts In 1980s Latin America Population living in poverty increased from 144 million to 211 million Africa Population living in extreme poverty increased from 205 million to 330 million ID: 633663
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A New Debt Crisis in the South?Slide2
‘Third World’ Debt Crisis
External debt in the global South
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Impacts: In 1980sLatin America Population living in poverty increased from 144 million to 211 millionAfrica Population living in extreme poverty increased from 205 million to 330 millionSlide4
The global ‘Jubilee’ campaign Slide5
HIPC debt cancellation from mid-2000sSlide6
Conditions to get debt cancelledTanzania had to privatise water system, which failed a few years laterMalawi had to sell off grain reserves, year before food crisisZambia had to privatise bank, overturning a parliamentary vote
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Some debts cancelled$130 billion cancelled for 36 countries; debt payments fallen by three-quartersSpending on healthcare increased from 5 per cent of national income to 7 per centChildren enrolled in primary school increased from 6 in 10 in 1990 to 8 in 10 by 2010
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Global South debts increasing again
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Lending boom causes‘Quantitative Easing’: Low interest rates and abundance of money in Western world following global North financial crisis = more interest and desire to lend to the SouthNew lenders such as ChinaNorthern donors shift more into loans, eg, from the World Bank (including climate loans)Slide12
Impacts of boom in nine countries most dependent on foreign lendingSlightly higher growth (4.7% compared to 3.6%)But in five of the nine, number of people living in poverty (World Bank definition) had been increasingInequality increasing in all nineStaying just as dependent on commodity exportsSlide13
Commodity dependence has increasedSlide14
Money in and out of Africa Slide15
Shocks and crisisSlide16
Since 2014: dollar increase in valueSlide17
Currency depreciations since start 2015Ghanaian Cedi: Down 39% against the dollarMozambique Metical: Down 49% against the dollarTanzanian Schilling: Down 28% against the dollarZambian Kwacha: Down 46% against the dollarSlide18
Impact nowLarge currency falls across many countriesIncreases in debt and debt paymentsIMF adjustment programmes:Ghana, Guinea, Liberia, Malawi, Mali, Niger Rwanda, Sierra LeoneMozambique (suspended)Zambia (expected soon)Slide19
Changes in GDP & External Debt since 2013Slide20
Debt todaySlide21
Countries in or at risk of debt crisisSlide22
Countries in or at risk of debt crisis Slide23
GhanaSlide24
Ghana’s rapidly increasing debtSlide25
Who Ghana’s debt is owed toSlide26
Interest cost of Ghana’s debtInterest rates:Eurobonds and other private external: 7.9% - 10.75%Cedi debt: 7% (average real interest rate)Other governments: 4.5% estimatedMultilateral institutions: 0% - 2%Slide27
Projected Ghana government external debt paymentsSlide28
Assumptions for sustainabilityIMF view that external debt is sustainable based on assumptions:$GDP growth averaging 8.2% a year until 2035Government $ revenue grows in line with GDPA fall in average interest rate on external debt from 5.1% to 4.1%Continual primary budget surplusesSlide29
Real government spending projected to fallSlide30
External bond refinancing could be difficultMost recent Eurobond autumn 2015:$1bn borrowed at 10.75%But World Bank guaranteed $400mThis implies cost would have been 16.25% without guaranteeAs long as government keeps paying interest until 2025, lenders will have made a profitSlide31
MozambiqueSlide32
MozambiqueSlide33
Mozambique and the hidden debtSlide34
Mozambique and the hidden debtSlide35
Mozambique and the hidden debt$726.5 million Eurobond: issued through Credit Suisse and VTB Bank in 2013. English law, London branches. Not approved by the Mozambique parliament.$597 million direct loan: 81% of the loan was from Credit Suisse, 19% VTB. English law, London branches. Not approved by the Mozambique parliament.$535 million direct loan from VTB. English law, London branches. It is now thought to be in default. Not approved by the Mozambique parliament.Slide36
Mozambique and the hidden debtSlide37
Mozambique and the hidden debtSlide38
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A New Debt Crisis in the South?