Responding to the COVID-19 pandemic’s impact on Africa’s economies, government ministers across the continent are calling for the suspension of debt interest payments. Ministers have also requested that principal payments—the debt itself, not just interest—be waived for “fragile states”, where people are particularly vulnerable to the pandemic.
The heads of the International Monetary Fund (IMF) and the World Bank on Monday expressed support for debt relief to help countries get their health systems pandemic-ready, but there are other creditors that would also need to agree to a moratorium on debt repayment for it to have maximum benefit. World Bank head David Malpass supports the suspension of all debt payment for the poorest countries, but also implied there should be conditions for debt relief by saying countries should implement free-market economic policies such as deregulation and removing subsidies. This suggestion has been criticized by the UK-based Jubilee Debt Campaign, a non-profit organization dedicated to rectifying unjust debt obligations for struggling countries, which has noted that state intervention is exactly what is needed to alleviate economic suffering caused by COVID-19.
Why It Matters
The fact that the IMF and the World Bank consider suspending debt payment emphasizes the potential severity of the pandemic’s impact on the global economy. Expecting poorer nations to continue paying interest on loans, or the principal loans themselves, amid a crisis such as this will take money out of local economies at a time when it is most needed. These relief efforts will also force economists and policymakers to reflect on the dogmas of international finance and macroeconomics, which have generally prioritized privatization along with the removal of subsidies and regulations. The UK has temporarily renationalized parts of its railway services, and Europe and North America have already implemented or are considering the implementation of welfare assistance to workers laid off or losing income during the pandemic. Once it has passed, the success or failure of these policies to alleviate economic suffering during this period will fundamentally shift public attitudes about the political economy of countries and the world economy.