Debt Crisis in Developing Countries

Presenter’s Name
Introduction
• The Coronavirus is among the 21st century’s major economic disruptors especially
for third world countries, struggling with debts.
• The world’s poor nations including several African and Latin American countries are
experiencing tough times as creditors call for their dues, amid the pandemic
disrupting their finances (Kharas, 2020).
• In their article in the New York Times, Walsh and Philips (2020) argue that as a
result of the Covid-19 pandemic economies across the globe are threatened.
• As such many countries with debts nearing payment periods from various private
investors are facing a significant challenge in meeting the terms of their agreements.
• For instance, the Tanzanian president made a plea to “our rich brothers” to
acknowledge the pandemic’s impact on the economy and cancel the country’s debts
(Walsh & Philips, 2020).
• It is impossible to estimate lasting period of the current global financial crisis, and
the possibility of poor countries to meet the terms of their loan agreement, but the
International Monetary Fund, estimates that borrowers across the globe need about
$2.5 trillion to cushion their economies.
• After Russia’s promise on delivering a $600 million loan to Belarus failed, due to oil and gas
price challenges, the later was on a verge of defaulting.
• While other countries such as Lebanon aim at restructuring its debts, Argentina succumbed
to its financial crisis and defaulted a ninth time in its history (Walsh & Philips, 2020).
• Prior to the Covid-19 pandemic, developing countries made connections with the
international investors by posing low interests rates, hence, creating a large pool of
investment opportunities.
• As investors sought for better and more profits compared to their home countries, they
pulled their resources into the countries through loans and developments.
• This led to the accumulation of debts by nations ranked as ‘low income’ and ‘lower-middle
income’ by the World Bank, totaling to over $2.1 trillion (Walsh & Philips, 2020).
• As identified in the article, Ugo Pannizza’s calculations on the current global debts
established 77 poor nations expected to deliver $62 billion in interests and principal
repayments in 2020.
• As I read the article I noticed that it provided significant insight on the issue effectively, as
the authors examine the historical aspect of the debt facing poor countries as at now.
• It is evident, that as a result of COVID-19 many third world countries or those identified as
Poor will have a hard time sustaining public health costs and delivering on debt repayments.
• The article develops and interesting analysis on the issue, through a financial scope
addressing COVID-19’s impact on the financial affairs of various third world nations
globally.
• Walsh and Philips (2020), extend their evaluation on the rift driven by the accumulating
debts between the debtors and their creditors, who are mainly private entities, with different
rules and interests.
• It established that many governments, after the spread of the virus were forced to halt their
economies, by closing ports and borders, restricting flights, and halting industries, thus,
limiting international as well as internal operations.
• These measures, affected the governments significantly, since their ability to meet the terms
of their loan repayments was maimed.
• I believe that as Kharas (2020) notes, it is not possible to predict the vulnerability of
different low income countries in achieving loan repayments.
• However, while interests on the loans increase, and the currency markets rapidly becoming
volatile, the country’s also face accumulating debts in public heath costs.
• Therefore, these poor nations, which have large loan repayment deadlines mainly in form of
bonds, are bound to experience trifles since negotiations become complicated to conduct.
• I found this analysis on the issue informative, as both Walsh and Philips establish
compelling grounds on the matter, through statistical data and theoretical approaches.
Conclusion
• Reading the article I developed a sense of understanding not only the intricacies of
financial debts but also its implications in the face of a pandemic such as COVID-19.
• According to Professor Mitu Gulati, the current global debt is significantly unlike
any experienced in the economy (Walsh & Philips, 2020).
• From historical insights for instance, the Lost Decade crisis in the 1980’s, while
mitigating such debts impaired global economies for years, the current problem
might pose a bigger challenge.
• Therefore, with about 77 countries originating from developing regions expected to
meet the payment of their debts by end of June this year, defaulting is inevitable
(Walsh & Philips, 2020).
• I believe that as the currency values continue to plummet as identified in nations
such as Brazil, whose rates against the dollar are 30% down, private investors should
brace for an oncoming wave of losses.
• Although, the implications of this pandemic on the global economy especially in
developing countries are significantly challenging to determine, the International
Monetary Fund, devised two programs aimed at sustaining the impact.
References
• Kharas, H. (2020, April 13). What to do about the coming debt crisis in developing
countries. Brookings. 
https://www.brookings.edu/blog/future-development/2020/04/13/what-to-do-about-th
e-coming-debt-crisis-in-developing-countries/
• Walsh, M. W., & Philips, M. (2020, June 1). Poor countries face a debt crisis ‘Unlike
anything we have seen’. The New York Times - Breaking News, World News &
Multimedia. 
https://www.nytimes.com/2020/06/01/business/coronavirus-poor-countries-debt.html?sea
rchResultPosition=1