Labour has got the message – poorer nations suffer most from bond market turmoil | Heather Stewart
Just as Brown and Blair did in 2005, Andy Burnham aims to champion debt relief to help developing countries Developing nations face triple shock, UN warns From Washington to Paris, London to Tokyo, policymakers in every large economy have been counting the costs of bond market turmoil in recent weeks. But the brunt of the pain is being borne by heavily indebted developing countries, that have…
The International Monetary Fund and World Bank are warning developing nations that they are facing a triple shock due to recent bond market turmoil. According to a UN report, poorer countries are suffering the most from these financial market fluctuations. Policymakers across the globe, from Washington to London, have been impacted, but the burden falls most heavily on heavily indebted developing countries that have little control over investor behavior.
The market has responded to the Middle East conflict and the White House's spending, resulting in higher borrowing costs for these countries. At the upcoming meetings of the IMF and World Bank in Bangkok, finance ministers and central bankers will address this crisis, but they may also be influenced by U.S. President Donald Trump's policies.
The situation is exacerbated by the ongoing energy crisis and the need for developing nations to invest in climate adaptation measures, which already consume 45% of government revenues in the global south, with 70% in low-income countries. There have been calls for reforming the international debt framework, particularly from African Union heads of state and the G20 chairs in Brazil and South Africa.
The G20, responsible for discussing international economic issues, previously established the IMF-administered Common Framework to aid struggling countries, and suspend repayments during the Covid crisis. However, under the new Trump administration, the G20 has shifted its focus to promoting global economic growth, despite the ongoing war in Iran being the main obstacle to achieving this.
In response, Labour leader Andy Burnham has pledged to prioritize debt relief when the UK takes over the G20 presidency next year. His foreign secretary, Ed Miliband, has promised to use the UK's position to mobilize the world for debt and development reforms. A proposed plan seeks to provide a 10-year "holiday" for the debt service costs of 27 of the most heavily burdened countries, allowing them to redirect resources towards climate and development objectives.
This initiative, spearheaded by the thinktank Development Finance International, would require private creditors to bear the majority of the financial burden, while the international financial institutions would only contribute when additional aid is exhausted.
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