Did you know that Ghana defaulted on its debt last month?
An article in The Guardian titled “Hedge funds holding up vital debt relief for crisis-hit Sri Lanka, warn economists” reminded me that the recession has in many places already arrived.
When it comes to economic trouble, western media tends to focus on the US and Europe. What is the Federal Reserve doing now? Will they raise interest rates .75 or .5 percentage points? Will the stock market tank?? Are we now in a technical recession?
All this activity about possible problems often crowds out actual problems in other places. That’s an issue because what we do in Western economies, such as raising interest rates, often has an outsized effect on countries near and far.
The Guardian article mentioned the following countries having suspended payments for external debt. I looked around to find an article on each so you can learn more about the situation and its background.
Reuters reports that Ghana suspended payments on most of its external debt. Ofori-Atta, the Finance Minister, gives the numbers:
Indeed, debt servicing is now absorbing more than half of total government revenues and almost 70% of tax revenue, while our total public debt stock, including that of state-owned enterprises and all, exceeds 100% of our GDP.
The Ghanaian Cedi had a tumultous 2022, and because many basic goods are imported, inflation has been running havoc.
What’s going on? Al Jazeera gives a decent overview in its article “How Ghana, Africa’s rising star, ended up in economic turmoil”, including about political decisions that came before the pandemic.
Lebanon made the news when a huge explosion rocked Beirut in August 2020. But its economic troubles are long in the making, as Reuters explains in its article “Explainer: Lebanon’s financial crisis and how it happened”.
Collapsing foreign exchange reserves meant that even things such as fuel and basic medicines became scarce.
An overview back from April 2022 about the crisis: Sri Lanka’s economic crisis was in the making from November 2019 by Firstpost.
For a deeper look, read What’s happening with the Sri Lankan economy? by Watchdog, a Sri Lankan journalist group. It’s a fairly comprehensive tale of declining tax revenues, huge infrastructure projects, and increasing borrowing.
49% inflation are reported by Carribean Life for this relatively small South American country with massive oil reserves.
“Economic crisis in Suriname: What’s next?” by the Global American gives a big picture overview.
Here is a very in-depth report by eurodad—short for european network on debt and development—on the debt situation.
And if you want a critical report on IMF/Word Bank involvement in Suriname, here it is: “World Bank and IMF are courting big oil in debt-laden Suriname, by Climate Home News.
Not sure that much needs to be said here. GDP dropped 30% in 2022, which this CNN article insists is less than expected.
Zambia was the first country to default on its debt in the pandemic era.
Read more about it in “Zambia’s economic storm eases but poor still feel the pain” by Reuters.
All this reminds me of debtors prison’s and how we learnt to overcome those. But have we?
The Guardian article above mentions a statement by Debt Justice UK, talking about the Sri Lankan crisis. It talks about risk premium—you get higher returns on some debts because the risk of default is higher.
While there are obvious issues with how various of these economies are run it also seems to me like people need reminding that their risk premium isn’t for fun, and that someone rich isn’t entitled to benefit from someone else going hungry.