Headed for failure

Almost 60% of low-income countries are struggling to repay their loans. This is hurting their development and climate preparedness 

- ROHINI KRISHNAMURTHY

ON OCTOBER 3, thousands took to the streets of Ghana's capital, Accra, demanding the central bank governor be removed for inaction during the country's worst financial crisis in a generation. The West African nation has been struggling with alarming levels of inflation and unemployment in recent years, with the latter tripling over the past decade. The situation is so acute that the country has already slashed its health budget by half since 2016, leaving over 41,000 nurses jobless.

The reason behind Ghana's financial crisis is its rising public debt (loans taken by the government), which it is unable to repay. In 2019, the country, which exports gold, oil and cocoa, had a public debt equivalent to 88 per cent of its gross domestic product (GDP). As a result, it is spending almost 70 per cent of its tax revenue to repay loans. The country has now taken a fresh loan of US $3 billion from the International Monetary Fund (IMF) to arrest the crisis.

Like Ghana, nine other low-income countries, including Republic of the Congo, Mozambique, Somalia, Sudan, Zambia and Zimbabwe, are debt-stressed, according to the World Bank debt sustainability analysis published in March 2023. It means these countries can no longer fulfil their financial obligations and need debt restructuring, which involves debtors and creditors negotiating on terms such as reducing interest on the loan or postponing the repayment date. Another 29 low-income countries are at high risk of debt distress, says the World Bank report that analysed 67 low-income countries. According to the International Monetary Fund, the share of debt-stressed low-income countries has risen from 2 per cent in 2012 to 13 per cent in 2022 (see 'Signs of decay' p42).