UN chief António Guterres warns of COVID-19 debt crisis for developing world

UN chief António Guterres has warned of looming  problems of debt sustainability in the wake of the coronavirus crisis in the developing world.

“The response to Covid and to the financial aspects [of the crisis] has been fragmented, and geopolitical divides are not helping,” Guterres told the Financial Times. “It has been too limited in scope and too late.”

Guterres said the fact that only six countries had defaulted on their foreign debts last year — Argentina, Belize, Ecuador, Lebanon, Suriname and Zambia — had created the “illusion” of stability and a “misperception of the seriousness of the situation”.

Large, middle-income developing countries such as Brazil and South Africa had borrowed heavily from domestic lenders rather than from foreign investors, at interest rates much higher than those available to rich countries, making the dangers less visible than in previous emerging market debt crises, he said.

“They are essentially borrowing in the internal market but maturities are coming down,” Guterres said. “This is a very bad signal. There is an illusion of sustainability but it risks bringing quite dramatic surprises, especially if the recovery is slower than expected from the slower access to vaccines.”