"The release of the fifth and final tranche of the International Monetary Fund (IMF)’s Catastrophe Containment and Relief Trust (CCRT) will be a small but limited contribution to alleviating the debt crisis developing countries are facing in the wake of COVID-19.
"However, the reliance on donor-funded debt service relief remains unsustainable without a systemic reform of the sovereign debt law and governance regime. The CCRT provides grants (mainly from bilateral donors) to pay for debt service owed to the IMF by qualifying low-income countries experiencing natural and public health disasters. Like the Heavily Indebted Poor Countries (HIPC) initiative, Multilateral Debt Relief Initiative and other donor-funded debt relief mechanisms, the CCRT is contingent on the political will of richer countries to contribute financial resources for debt relief. It does not involve a restructuring of debt obligations or renegotiation of the terms of the debt contract based on countries’ exigent circumstances.
"Consequently, these mechanisms reinforce the problematic political and economic dynamic of sovereign debt relations. They continue to subject developing countries to continuing oversight and control of donor countries and donor-funded institutions, such as the IMF, of their economic policy and social development planning. As recent studies have shown, economic adjustment programmes attached to debt relief and financing from the IMF, continue to subject recipient countries to policy prescriptions premised on austerity and fiscal consolidation that can and will undermine pandemic recovery measures.
"What developing countries need is an urgent reform of the legal and political architecture of sovereign debt to enable a sustainable and equitable recovery from the pandemic."
21 December 2021
For more information, see:
- Briefings and comment from the IEL Collective on COVID-19 and Sovereign Debt, available here
- International Public Finance and COVID-19: A New Architecture is Urgently Needed, an article on medium.com available here
Media Relations Manager
University of Warwick