Oxfam warns of potential $220 billion budget cuts in emerging economies due to the debt crisis

Oxfam International has issued a report indicating that emerging economies, including some of the world’s most impoverished nations, are on the verge of facing budget cuts exceeding $220 billion over the next five years due to an impending debt crisis that has pushed many countries to the brink of default.

This information comes from a recent Oxfam report released coincidentally with the commencement of the IMF-World Bank meetings in Marrakech.

The report, drawing upon IMF projections, also reveals that low- and lower-middle-income nations are expected to grapple with daily interest and debt payments totaling nearly half a billion dollars until 2029, based on current conditions.

The debt crisis has been exacerbated by a combination of factors, including rising global interest rates, surging inflation, and a series of economic shocks triggered by the aftermath of the COVID-19 pandemic, which has severely strained state finances.

According to Fitch, a prominent rating agency, there have been 14 separate instances of default across nine sovereign nations since 2020, as of March.

In response to this dire situation, Oxfam has called on the IMF and the World Bank to view this crisis as an opportunity to establish a more equitable system, rather than solely focusing on debt restructuring and austerity measures.

Amitabh Behar, Interim Executive Director of Oxfam International, emphasized that the proposed solutions currently emphasize austerity measures and increased loans, while potential solutions, such as equitable taxation of the wealthy, remain unexplored.

“Their response to the debt crisis is more austerity, and their response to the financing gap is more loans. True win-win solutions, like fairly taxing the rich, are being left unexplored,” said Amitabh Behar in a statement.

Oxfam and other humanitarian and advocacy organizations have previously called on international creditors to forgive the debts of developing nations facing severe economic crises.

The report also highlights a troubling disparity: debt servicing payments in the poorest countries are surpassing healthcare expenditures at a ratio of four to one.

For some countries currently in default, such as Zambia and Ghana, discussions on debt restructuring are expected to make progress during in-person meetings in Marrakech.

At the same time, the IMF will continue its discussions with Tunisia, Pakistan, Egypt, and others regarding the terms of proposed bailout loans.