As the Covid-19 pandemic has unfolded, commentators have busied themselves estimating how long it was since we faced an economic crisis as big as the one we face now. According to the most recent estimates, this could be the worst global economic crisis for at least 150 years. It’s reasonably likely that even this dire scenario will be replaced by bleaker estimates in the coming weeks, as the sheer scale of the global economic upheaval resulting from the pandemic becomes clear.

Prior to Covid-19 the IMF would make regular ‘worst case scenario’ projections for debt levels and debt payments for countries in the Global South, based on a single economic shock such as a large fall in the exchange rate of a country’s currency. The pandemic has blown all of these projections out of the water. Over the last month, developing countries have faced an unprecedented onslaught of not one but multiple shocks to their economic systems. 

The economic slow-down in richer, high-consumption economies like the US, Europe and China led to a collapse in the global price of raw materials like oil and copper, on which the economies of many poorer countries depend. This in turn led to a fall in the value of these countries’ currencies against the all-powerful US dollar, leading to an increase in the relative size of the debt owed in foreign currencies, and driving up inflation through the increased cost of imports. 

Next came the largest capital outflow ‘ever recorded’, with the IMF’s new Executive Director Kristalina Georgieva announcing on 23 March that investors had already removed US$83 billion from emerging markets since the beginning of the crisis. And finally, as global investors stripped out investment from developing country economies, transferring it to the safe havens of gold or rich country currencies or government debt, confidence in the ability of developing countries to repay their debts collapsed, and their future borrowing costs shot through the roof. 

Even before the pandemic began, a series of sovereign debt crises was already spreading across the Global South. After 2008, the pumping of vast quantities of money into the hands of wealthy asset holders in rich countries through quantitative easing, and the ultra-low interest rate environment, led investors to seek higher returns by investing in riskier poor country debt. And an earlier commodity price crash in 2014 had already dramatically eaten into the money available to heavily-indebted poor countries to repay their debts and spend money on the things governments are meant to spend money on, like basic healthcare and education. 

Prior to the outbreak of the pandemic, 7 of the countries assessed by the IMF were already in debt default, and another 27 considered to be at high risk. Now, when poorer countries need every single penny they can lay their hands on to shore up chronically under-funded and weak health systems in the face of Covid-19, they face sky-rocketing debt payments and a drying up of new sources of credit.

The idea that countries with high levels of poverty and weak public health systems should be expected to prioritise repaying creditors in the face of a global health crisis is simply indefensible. That is why calls are growing for urgent and immediate action to cancel developing country debt payments. 

On Tuesday, over 150 global civil society organisations called for the cancellation of all external debt payments due to be made by developing countries in 2020. This includes debts to other governments, debts to multilateral institutions like the IMF and World Bank, and, crucially, debts to the private sector. 

The IMF and World Bank have instead called for a suspension of debt payments by the poorest countries to other governments. Suspending debt payments would simply kick the can down the road, putting these countries on track to face an even bigger debt crunch in a year or two’s time. Moreover, suspending debt payments to other governments and not to the private sector means handing over public funds to private investors, which we simply cannot afford.

Additional finance must also be provided to poorer countries. With their economies decimated by the austerity medicine of the World Bank and IMF, by tax dodging and illicit finance flows, and by debt payments and unfair trade rules, most developing countries still lack public funds to support even adequate primary healthcare. The Central African Republic has just three ventilators for a population of 5 million people. 

The UN is calling for a US$2.5 trillion package for these countries to avert a global health catastrophe, including $1 trillion of debt cancellation. There are new and innovative ways of providing this additional finance, which wouldn’t add to the public debts of richer countries. The IMF can issue extra ‘Special Drawing Rights’, an international reserve asset that can be redeemed by IMF shareholder governments and then transferred to developing countries. SDRs were used in 2009, there is absolutely no reason why they shouldn’t be used now, on an even bigger scale.

All eyes are now on the G20 Finance Ministers meeting and IMF and World Bank Spring meetings, both happening ‘virtually’ next week, where some progress is expected. The cancellation of developing country debts is not without precedent. In 2005, in response to a global civil society campaign led by tireless campaigners from the Global South, world leaders agreed to cancel $130 billion of debt for 36 countries. This gave these countries, whose economies had been pillaged by colonialism and then by deeply unfair global trade, tax and investment regimes, a much-needed reprieve, and quickly led to significant improvements in access to healthcare and education.

This time, it is critical that we don’t just accept debt cancellation, but instead push for the bigger structural changes necessary to promote sustainable development. We must put an end to the processes that extract wealth from poor countries and keep them locked in poverty, natural resource extraction, low value manufacturing, and the endless cycle of ever-worsening financial and economic shocks. Otherwise we will find ourselves back here in 10 years’ time – only next time, even though it’s hard to imagine, the situation could be even worse.