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Clearly the pandemic has created enormous economic fallout across the globe; but for poorer countries already struggling to stay afloat it has been a double disaster. With high levels of debt, the reduced national income they are experiencing is sometimes needed first and foremost to pay off debt. Yet at the same time income is down and expenditure is up, with more money required to finance healthcare and social support systems. The limited funds they have are often insufficient to meet social needs, let alone repay creditors. Therefore it is perhaps unsurprising that appeals for more generous debt relief are emerging.

Earlier in the year the G20 forged an agreement to allow debt repayment deferral for three years. However more significant reductions have proved problematic with both the US and China reluctant to engage positively with such plans. So far 43 countries have applied to defer around $5.3 billion of debt from the funding so far made available. However debtors have bemoaned the fact that more is not being done. Ken Olfori-Atta, the finance minister of Ghana, has been especially critical saying that it is unconscionable that major economies have somehow found trillions of dollars for their own citizens but have been unable to find a few billion more in terms of debt relief. Deferring payments for three years may be a help but may in the view of many be insufficient to avoid huge economic consequences for poorer nations. More ambitious plans have recently been announced by Vera Songwe, head of the UN Economic Commission for Africa, who is coordinating an appeal by African finance ministers to raise $100 billion a year for the next three years to avoid an economic crisis. However extra borrowing at this level is problematic. Poorer countries typically have poor credit ratings resulting in high interest payments. Ms Songwe argues that loans need to be provided at lower rates of interest than is currently the case. However that would probably need to be provided by IMF-backed Special Drawing Rights (SDRs) but that option has been so far vetoed by the US.

The situation faced by these poorer countries is a looming crisis which will only get worse unless some kind of collective action to help them out is taken soon. With the costs of dealing with the pandemic mounting and the problem of debt repayment looming, poorer countries could soon be faced with the unpalatable problem of whether to pump more money into their own economies to keep them afloat and protect already struggling citizens from even greater harm or repaying creditors. It is an awful conundrum for the governments of such nation states to have to face. They will be hoping that richer nations, who themselves are facing major financial challenges, do not turn their backs on them at a time when perhaps they need their help more than ever.

Wayne Bartlett is an author for accountingcpd. To see his courses, click here.

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