Several developing countries are emerging from the pandemic-induced global recession with a massive debt overhang that is crippling their economies.
About one-third of Sri Lanka’s debts are owed to international bondholders while other large creditors include countries like China and India. It is expected to finalise a $1 billion credit line with India.that Sri Lanka is en route to defaulting and ‘restructuring’ its debts with creditors. In doing so, it would join Belize, Ecuador, Suriname and Zambia as countries that have defaulted on their debts during the pandemic.
The irony is that poor countries are forced to raise even more debt in order to meet repayments and existing debt, much of which is denominated in US dollars. And as the greenback increased in value as a safe haven during the pandemic, the burden of repayment has only mounted. According to the World Bank, about 60 percent of all low-income countries need to restructure their debts or are at risk of needing to do so. More than 70 low-income nations are facing extra debt repayments of near $11 billion in 2022, an increase of 45 percent from 2020 after a sharp rise in borrowing last year.