Prospect Magazine/Paul Wallace: Is a new debt crisis brewing in the world’s poorest economies?

Prospect Magazine 
March 30 2018 9:54am
   
Economics & Finance

Is a new debt crisis brewing in the world’s poorest economies?
This could be even trickier to resolve than in the past
by Paul Wallace    / March 29, 2018 / Leave a comment

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President of Mozambique Filipe Nyusi. In Mozambique public debt rocketed from 53 per cent of GDP in 2013 to 128 per cent at the end of 2016.

Over the past few years debt crises have struck in unfamiliar places—in developed rather than developing economies. In 2012 Greece became the first advanced country to restructure its debt in more than half a century (ironically, the preceding example in 1953 was Germany, the Greeks’ scourge). Four other countries on the periphery of the eurozone avoided defaulting on their debt but required bailouts as they lost access to sovereign bond markets. But as Greece looks set later this year to exit its third rescue programme since 2010 there are mounting worries that a new debt crisis may be looming in the more familiar setting of poor economies. Earlier this month the International Monetary Fund made clear its concerns.

Until recently such fears were receding rather than intensifying for poor countries, a group of around 60 economies whose income per person is below the emerging-market threshold, and which make up a fifth of the world’s population but only 4 per cent of global output. The first decade or so of the 21st century was benign for these countries as far as debt was concerned. Public debt for the typical (median) economy in this group fell from 94 per cent of GDP in 2001 to around 33 per cent at the start of this decade. A big debt relief programme launched in 1996 by the IMF and World Bank (and enhanced in 2005), helping over 30 highly indebted poor countries mostly in Africa, contributed to the improvement. So did robust growth ahead of the financial crisis and the continuing strength of emerging economies—notably China—after the crisis.

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Paul Wallace
Paul Wallace is the former European Economics Editor of the Economist. He is the author of "The Euro Experiment" (Cambridge University Press)
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