The African Leaders Debt Relief Initiative (ALDRI) proposes to address the debt crisis in two ways, including comprehensive debt restructuring for heavily indebted countries and reducing borrowing costs for developing countries.
Experts say that if these measures are implemented soon, many countries would escape the risk of bankruptcy, thereby increasing investment in projects to respond to climate change, fight poverty, as well as the transition to clean energy.
The initiative was launched in the context of the need to quickly handle the global public debt crisis becoming more urgent than ever. The recently released United Nations Development Programme (UNDP) report has exposed the alarming reality of the public debt that many countries are facing.
Accordingly, the total foreign debt of the 31 poorest countries in the world has reached 205 billion USD. Meanwhile, in 56 developing countries, more than 10% of government revenue is used to pay interest on loans.
Many countries even spend as much as 20% of their revenue just to pay interest, thus depleting the financial resources for important needs in health, education, and climate change response.
Although the debt bomb threatens to explode in many countries around the world, Africa is the region that is most heavily affected.
According to former Nigerian President Olusegun Obasanjo, the African continent is stuck in the worst debt crisis in the past 80 years, with more than half of the population living in countries that spend more money on interest payments than on education, healthcare, and climate change.
World Bank (WB) economist Indermit Gill commented that record high debt and interest rates have pushed many countries deeper into crisis.
Prolonged conflicts, outbreaks of disease, hyperinflation and high interest rates are considered the leading causes of the debt crisis in Africa and many developing countries.
In an effort to solve this difficult problem, some countries have sought financial support from the WB and multilateral organisations.
However, the paradox is that the borrowed money is not used to increase socio-economic investment but simply flows back out to fulfil debt repayment obligations.
The economy is held back by the money that should have been used for development investment, but is used to pay off seemingly endless debt as the global interest rate hike cycle causes debt to swell further.
Addressing the debt burden is not only an urgent need for Africa and many developing countries, but also has important implications for efforts to realise the Sustainable Development Goals (SDGs).
According to former Malawian President Joyce Banda, by 2030, developing countries will need up to 6.4 trillion USD per year to meet their SDGs. However, these goals may be out of reach, as countries are struggling to shoulder huge debts.
According to UNDP, if we do not act soon, the consequences will be huge as extreme poverty may increase and investments to adapt and reduce the impact of climate change will be difficult to implement.
Worryingly, the countries that are most severely affected by the debt crisis are also the most vulnerable in the world.
Analysts say that the debt crisis is not a problem that can be solved overnight. Therefore, early implementation of the debt relief initiative is a necessary step to gradually reduce the burden on the shoulders of many governments.
UNDP Director-General Achim Steiner commented that debt reduction is a step that rich countries can easily take, but the cost of inaction is very serious for poor countries in the world.
