That said, not all countries will be able to successfully launch an economic recovery at the moment.
If global growth resumes in 2021, some developing countries may be able to weather the economic crisis reasonably well. But not everyone will be so lucky. In March last year, when the coronavirus pandemic hit the global economy, many analysts feared that markets and less developed countries would suffer most financially.
Economically, these countries relied on commodity exports, remittances and tourism, all of which were hit hard during the pandemic. There was every reason to expect a tsunami of financial crisis and debt, says the British newspaper The Guardian.
The economic tsunami never arrived. Only six countries – Argentina, Ecuador, Belize, Lebanon, Suriname and Zambia – failed to control their own debts
Encouragingly, the impact of COVID-19 on developing countries, particularly in Africa, has not been as severe as predicted. The young populations of these countries are relatively resistant to the coronavirus. Health systems, responding to past epidemics, have gained public confidence, and China’s rapid economic recovery has increased demand for their commodity exports.
Also financially, current conditions are surprisingly stable. Emerging markets began to lose capital in March, when the crisis erupted. In April, however, capital outflows stopped and net financial flows to emerging markets began to rise.
If global growth resumes in 2021, thanks to the positive impact of population vaccination and the US Federal Reserve’s continued commitment to ultra-low interest rates, some emerging economies could successfully navigate the financial crisis.
But other countries, which have been hit harder by declining export profits and collapsing remittances, could face serious debt.
In addition, external debt is projected to grow twice as much in 2021 as it did in 2020. Much of the debt has become critical due to the economic shock of the pandemic.
“The G20 has responded with an initiative that allows 73 low-income countries to postpone paying their debts for a year and a half. But such an initiative is flawed. Deferral, rather than interest forgiveness, is a bit of a stingy gift, but it is better than nothing.
In April last year, the G20 “urged” private creditors to agree to some concessions. But investors, as expected, are thinking more about their own profits rather than the plight of underdeveloped countries.
The private sector has made it clear that it has little interest in concessions. History shows that private debts are only restructured when creditors see at least a minimum benefit.
What else can be done? The UN Security Council could pass a resolution instructing its member states to protect the assets of low-income countries. The US Congress could make it into law. However, consensus at the UN Security Council is hard to come by. The administration of the new US President Joe Biden will have limited political capital, limited bandwidth and a host of other problems. Despite the optimism of an economic recovery in 2021, rising debts could still play a negative role, the paper concludes.