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April 24, 2020

Cancel Asia’s debt


April 24, 2020

“Apart from containing the virus and dealing with the economic crisis, our biggest worry now is the people dying of hunger," said Imran Khan, prime minister of Pakistan in a televised plea to international donors asking debt relief for developing countries like his.

The president of Sri Lanka too issued a statement requesting “a debt moratorium or deferment facility to all vulnerable developing nations to the Covid-19 risk.” For Sri Lanka, Pakistan, and other developing Asian nations, the battle managing debt is – as Mr Khan put it – a matter of life and death.

Mr Khan added: "Pakistan with a population of 220 million, so far the best stimulus package we can afford is $8 billion." If spread equally, it would amount to less than $40 per citizen. While many nations, including Pakistan and Sri Lanka, have committed to free Covid-19 testing, a single test alone costs $40 or more in many countries.

Public health systems across Asia are often stricken with long queues and poor-quality care unable to cope with demand on a regular day. In Asean’s five most populous nations, ratio of doctors is 0.8 for 1,000 people, and out-of-pocket expenditure for healthcare is at 44 percent. In this global pandemic, ramping up healthcare systems is not an option, but a necessity.

The Oxfam report, ‘Dignity not Destitution’, launched last week found in addition to catastrophic loss of life due to failing healthcare, the economic fallout could push half a billion more people around the globe into poverty.

A 20 percent loss of income, a very likely scenario if their work stops for a couple of months, would push 230 million people in South Asia and 60 million people in East Asia and Pacific into extreme poverty (less than $1.90/day). Another 440 million people will be at the brink, merely surviving on less than $3.20 a day.

Women are on the front line of the fight against the coronavirus, making up 70 percent of health workers globally. They are more likely to be in poorly paid precarious jobs that are most at risk. More than a million Bangladeshi garment workers – 80 percent of whom are women – have already been sent home.

To prevent death from sickness, save lives and avert widespread catastrophe – including hunger that Prime Minister Khan alludes to and is being experienced by vulnerable populations already – the governments need to ramp up health facilities and provide food and cash for those most at risk.

However, with a high percentage of government revenue going into debt servicing, countries like Pakistan and Sri Lanka are strapped for cash. The two countries have a debt to GDP ratio of 72 and 83 percent respectively as of 2018. While the debt-to-GDP is lower elsewhere, Asian countries hit by the pandemic still have large debt commitments.

The pandemic will further increase debt of countries because of reduction in tax revenue due to lockdowns and sharp increases in expenditures in healthcare to save lives and in supporting people to survive during this unprecedented economic shock.

In the case of Pakistan – with a maximum stimulus budget available of $8 billion for a nation of 220 million people, it can only afford less than $40 per person. As of 2018, Pakistan was to pay back nearly $5.5 billion on annual debt servicing. If debts were canceled, that amounts to $25 freed up per citizen per year. However, if savings from debt cancellations were targeted at the poorest – the bottom 20 percent of the population – then it would amount to $129.

Elsewhere, if debt relief for a year was targeted on Covid-19 assistance to all people in the country, each citizen in Sri Lanka, Thailand, Indonesia, Vietnam, and Lao PDR would benefit from $326, 258, 205, 185 and 131 per person. Targeting the same relief at the bottom fifth, more in need due to poverty and risk, would see larger and more meaningful gains; Sri Lanka ($1631), Thailand ($1291), Indonesia ($1024), Vietnam ($925), Lao PDR ($653), Philippines ($411), and Cambodia ($373).

Even if debt relief availed monies for a year, or more in cases of the lower-income nations such as Pakistan and Bangladesh, the temporary concessions would be nowhere near the trillion-dollar stimulus packages announced by the US and Japan. However, the cancellations will go a long way to making the most at-risk populations safer from disease, hunger, and economic and societal catastrophe.

For developing nations in Asia and elsewhere, the time is now to take a united stand, acting through regional bodies like Asean and Saarc where necessary to support each other and to call for a global debt cancellation to benefit their people.

In turn, the developed world and global financiers like the G-20, Paris Club, World Bank, IMF, ADB, and AIIB must recognize the urgency of granting the cancellations and act immediately. Countries needing additional cash inputs must be prioritized for grants.

Rich nations and the entire planet must all act now. Today we live in a world of infinite interdependencies, and our defenses are only as strong its weakest link. Taking care of those who need it the most is taking care of ourselves.

The writer is the regional director for Oxfam in Asia.