International Debt

• Debt Facts

  2020-global debt rose to 262% of GDP

  -emerging economies total debt reached 206% of GDP

  2019-121 low and middle income governments spent approx 10% on public health services but over 12% on public debt repayment.
• National Deficit


  Occurs when a government's annual spending exceeds the incomes that it generates through taxes and other means
• National Debt

  An accumulation of yearly deficits, and is often expressed as a percentage of GDP.
• Terms Associated with Debt

  Debt traps-loaned money that countries can't repay, e.g China and Silk road.

  Costly-interest rates

  Different types-TNC's, infrastructure, public sector, conflict.
• Countries with Highest Debt-to-GDP ratio

  1)Japan-257%

  2)Sudan-210%

  3)Grece-207%
• Reasons for Japan's High Debt-to-GDP Ratio

  -Earthquakes

  -Ageing population

  -2008, financial crisis, retail bust

  -Olympics affected by COVID-19

  -Nuclear disaster

  -Low investor confidence
• Current Debt Ratios

  -Many HIC's have large assets against which they can borrow money, therefore the debt is thought to be manageable.

  -All debts will have interest payments that will need to be paid on top of the initial debt which then means there is less money to spend on other things like healthcare.
• Causes of National Debt (UK as Example)

  UK has always been in debt, so nothing new.Levels of debt has hit £2 trillion (highest since 1962).During the pandemic there was a fall in revenue for the government BUT expenditure was still high, including;-universal credit increases for one year-business loans of up to £350 billion-increase in housing benefits-support for self employed and private renters-supporting workers who were made redundant (furlough), paying 80% of salary up to £25,000 per yearIn December 2021, UK public sector debt was 96% of GDP.
• UK Debt History

  2002-2012;-Mid 1990s there had been a financial restraint (29% of GDP)2002-2007, national debt increased to 37% of GDP, due to long periods of economic expansion and increases in healthcare and education.-Marked increase in social security spending.2008-2015;-recession meant lower tax receipts and higher spending on unemployment-stamp duty lower as house prices fell, lower income tax and lower cooperation tax-financial bailout of Northern Rock, RBS, Lloyds etc.-spending greater than tax.
• Potential Problems of National Debt

  1)Interest payments

  2)Higher taxes and lower spending in the future

  3)Crowding out of private sector investment/spending

  4)Ageing population puts pressure on the population (HIC)

  5)Exchange rate linked to debt

  6)Rising interest rates if potential lenders become reluctant to borrow to the UK
• Debt Example-Haiti


  -Public debt=$5 billion, roughly $441 per person.

  -18th worst debt to GDP ratio

  -16th worst debt per capita

  -External and odious debt
• Causes of Haiti Debt-Governance

  1950-everyone gained right to vote, however election tampering common.

  -Government has little influence on rural/remote villages

  -High levels of corruption (boycott of elections)

  -Military often used violence to influence politics

  -Gangs control a lot of the country

  -Government took out loans from French banks and now can't pay back.
• Causes of Haiti Debt-Natural Disasters

  -Cost of environmental damage, loss of revenues from disasters and building back all contribute to high debt.

  2010 Earthquake-3 million impacted, 300,000 homes destroyed, 60% of nations infrastructure lost, total damage was $7.8 billion, 1.5 million displaced.
• Causes of Haiti Debt-Colonialism/History

  -2020, external debt=£2 billion

  -21 billion had to be payed in order to gain independence from France and repatriate slaves.

  -Eventually money to France was payed, however was a significant share of GDP so hampered economic development.

  -Owe money to France due to 1825 agreement between Haiti and France, money payed due to lives lost through Haitian revolution.

  -Debt took 122 years to repay.
• Causes of Haiti Debt-Other Factors

  Duvalier;-president from 1971-1986-once in power thousands of Haitians killed/tortured and many fled.-he lived a lavish lifestyle whilst surrounded by extreme poverty.-used money from the government for his own use
• Debt Ratio Service


  The proportion of a country's export earnings needed to meet its debt repayments.

  -in UK between 1980-1981 was 3.8% of GDP, and between 2020-2021 was 0.9% of GDP.

  -is a fragile state however because of inflation could rise which are tied to certain things.
• Global Debt Crisis-History

  1973-1974, Arab-Israeli war resulted in sharp increases in oil prices.

  -governments and individuals on oil producing nations invested their profits into banks of HIC's.

  -banks knew that they could benefit by offering low interest rates.

  1981-1984, drought severely affected Africa's cash crops production.

  -value of the dollar increased which meant African loans tied to the value of the dollar went up making it harder to be paid off.

  -at the same time there was a recession in 1980s/90s leading to rising inflation and higher interest rates, whilst crop services meant prices dropped.

  -LIC's saw earnings drop and couldn't pay off loans.
• Impacts of International Debt Crisis

  -Interest repayment issues

  -High debt service ratio

  -Future creditworthiness impacted

  -Odious debt (corrupt)

  -Defaulting on loans

  -Reduction in funds for other improvements domestically

  -Currency issues

  -Civil strife and protests

  -Impact on reputation of the country/government
• European Debt Crisis

  -Impacted many Eurozone countries since the end of 2009

  -Members impacted were unable to repay government debt or bail out indebted institutions without the assistance of third parties.

  -Causes included high risk lending and borrowing, burst real estate bubble and deficit spending, so investors backed off.

  -All followed the back of the 2008 financial crisis.
• Latin American Debt Crisis


  -Originated in 1980s when debt exceeded their own earning power.

  -Creditors were happy to lend as economies were "flying" and were given extra loans by WB.

  -Huge impacts in 1982; unemployment rose, inflation increased, real wages dropped by 20-40%, investment was being used to pay back debt.
• Debt Crisis in Greece-Facts

  1980s and 1990s debt started to pile up

  2022-$349 billion of debt

  2011-$495 billion of debt
• Debt Crisis in Greece-Origins and Cause

  -Originated from heavy government spending

  -Faced a sovereign debt crisis in the aftermath of the financial crisis of 2007-2008.

  -Triggered by great recession, structural weaknesses in the Greek economy, and lack of monetary policy flexibility as a member of the Eurozone.

  -Previous data on government debt levels and deficits had been under reported by the government so it built up.

  -Significant reliance on vulnerable factors, such as tourism

  -Only reported half the value of actual debt

  -Low competitiveness in terms of exports.
• Debt Crisis in Greece-Impacts

  -GDP fell by 6.9%

  -Youth unemployment rose to 54%

  -Debt to GDP ratio rose to 179%

  -12 rounds of tax increase from 2010-2016

  -Government spending cuts

  -20,000 Greeks made homeless

  -In 2015, was the first developed country to fail to repay an IMF loan.

  -Loss of confidence in economy

  -Austerity package introduced
• Debt Crisis in Greece-A Way Forward

  -Bailout increased to 190bn euros

  2012-bond holders took a loss

  2013-bailout clause from IMF

  2015-austerity was not working

  2019-still in over $300 bn excess debt

  However, rebounded well from COVID, due to tourism.
• Who is Responsible for the International Debt Crisis?

  Lenders-influx of capital, lending too quickly without thought, loans rather than grants, interests rates low but then steadily rise, loans to pay off old loans, austerity measures enforced which leads to economic loss.Borrowers-irresponsible/inappropriate borrowing, excessive spending, corruption, poor governance, hidden borrowing (Greece), odious debt.Other-global recessions, inflation, interest rates, commodity price fluctuations, natural disasters, historical, over reliance.
• Managing Debt

  The World Bank tries to help countries manage their debt better.1)Debt Sustainability-working with IMF to help LICs achieve their development goals without creating further debt problems.2)Debt Management-helps governments proactively find the best solutions to raise funds at lowest risk/cost.3)Heavily Indebted Poor Countries (HIPC)-initiative in response to unsustainable debt that developing countries had gained from 1970/80s. Called for voluntary debt relief by all creditors and allowed countries a fresh start. To be considered, country must have a track record of macro-economic stability or poverty reduction strategy. 36 countries were eligible. Over $100 billion of debt has been relieved.
• Managing Debt from Multi-Lateral Agencies

  -Can also come from multi-lateral organisations such as WB or IMF.International development association (IDA)set up in 1960s by WB to help poorest nations. Currently has 74 countries and lends money with very low interest rates.-works alongside HIPC-provided $459 billion to 114 countries-many IDA countries have graduated to become donors, e.g China, Chile.-in 2020 IDA countries spent $18.1 billion on debt payments to other governments.
• Giving of Loans

  -Loans can help countries to expand their industrial base and create and upward spiral of development.

  -However, some are given to poorer countries in dubious circumstances.

  -Odious debt can occur when loans are taken but not used to help the country, but benefit the giver.

  -Can come from other countries but also the private sector.
• Club de Paris


  -Group of major creditors who are meant to help debtor countries stabilise and restore their economies but also help with debt relief.

  -Created in 1956 and since then has signed 433 agreements totalling over $583 billion.
• China Lending


  -Is owned at least $385 billion in debt by 165 countries.

  -Pakistan is in $73.3 billion of debt to China.

  -China has surpassed lending by the WB, IMF and OECD creditors.
• The Future of Debt Relief


  Is debt relief the answer ?

  -HIPC?

  -Multilateral Debt Relief Initiative

  -IDA?

  Or should countries look towards trade?

  -tourism as an export earner?

  -using money to help diversify and educate the population

  -however, trade has it's own issues such as dependency

  What about the SCALE that problems impact the people and country, and the fact that debt is DYNAMIC.
• SAPs

  Structural Adjustment Programmes (SAPs)-economic policies for developing countries that have been promoted by the World Bank and International Monetary Fund (IMF) since the early 1980s by the provision of loans conditional on the adoption of such policies.