Crippling Cost of Debt Financing Hampers Developing Countries' Pandemic Recovery

Strategic Insights -

The COVID-19 pandemic has had a devastating impact on developing countries, plunging 77 million more people into extreme poverty in 2021, and by the end of the year, many economies remained below pre-2019 levels. A new report by the United Nations finds that while rich countries were able to support their pandemic recovery with record sums borrowed at ultra-low interest rates, the poorest countries spent billions servicing debt, preventing them from investing in sustainable development.

The report, titled "2022 Financing for Sustainable Development Report: Bridging the Finance Divide," highlights the alarming findings that in 1 in 5 developing countries' GDP per capita will not return to 2019 levels by the end of 2023, even before absorbing the impacts of the Ukraine war. The report also notes that on average, the poorest developing countries pay 14% of revenue for interest on their debt, almost 4 times higher than developed countries, at 3.5%.

Key Takeaways:

  • The pandemic shock has plunged 77 million more people into extreme poverty in 2021, and many economies remain below pre-2019 levels.
  • 1 in 5 developing countries' GDP per capita will not return to 2019 levels by the end of 2023, even before absorbing the impacts of the Ukraine war.
  • The poorest developing countries pay 14% of revenue for interest on their debt, almost 4 times higher than developed countries, at 3.5%.
  • Developing countries on average had only enough COVID-19 vaccine doses for 24 per 100 people, versus almost 150 per 100 people for developed countries.
  • 70% of 10-year-olds in developing countries were unable to read a basic text in 2021, a 17% increase from 2019.
  • The pandemic recovery gaps had already widened prior to the war, with developing countries on average cutting budgets for education, infrastructure, and other capital spending.
  • The war in Ukraine will exacerbate these challenges and create new ones, with higher energy and commodity prices, renewed supply chain disruptions, higher inflation, and increased volatility in financial markets.

Statistics:

  • The pandemic shock plunged 77 million more people into extreme poverty in 2021.
  • Developing countries on average had only enough COVID-19 vaccine doses for 24 per 100 people, versus almost 150 per 100 people for developed countries.
  • 70% of 10-year-olds in developing countries were unable to read a basic text in 2021, a 17% increase from 2019.
  • Developing countries on average paid 14% of revenue for interest on their debt, almost 4 times higher than developed countries, at 3.5%.
  • Private equity and venture capital investment in developing countries reached a record $230 billion in 2021.
  • Official Development Assistance (ODA) increased to its highest level ever in 2020, rising to $161.2 billion.

Sources:

  • "2022 Financing for Sustainable Development Report: Bridging the Finance Divide" by the United Nations.
  • Statement by UN Deputy Secretary-General Amina Mohammed.
  • Statement by UN Under Secretary-General Liu Zhenmin.