International Economics: IB Economics

It seems that the rate of debt payment for less economically developed countries has reached a 30 year high, especially for those most vulnerable to climate change. The charity Debt Justice estimates that these countries are paying 15.5% in government revenues to external creditors, compared to 8% pre-Covid and 4% in 2010.

Such a rise in debt interest payments has a significant opportunity cost. 

Debt Justice have called for debt relief, as developing economies are having to cut their public spending by an average of 3% between 2019 and 2023 to meet increased debt repayments. Given the fact that interest rates are rising, expect this to become more of an issue should the developed world tighten monetary policy in the months ahead. 

Much like Sri Lanka has had a well-publicised economic crisis, Zambia too seems to be on the brink of economic collapse and there are calls for international lenders to write-off some of their loans.

Such debt relief would buy the country time to try and get its house in order, although with private investors holding nearly 50% of all debt, there are worries that they won't agree to this. As a result, there may well be some form of debt restructuring, otherwise the economy's development will stall.