By Allison Holland and Ceyla Pazarbasioglu
WASHINGTON DC, Jan 29 2024 – As 2024 starts, the good news is that there haven’t been any notable requests by a low-income country for comprehensive debt relief since Ghana’s, more than a year ago. Despite this, vulnerabilities remain, with high debt servicing costs a growing challenge for low-income countries.

Financing pressures due to relatively high interest payments and the pace at which low-income countries need to repay debt are straining budgets. That prevents these countries from spending more on essential services or the critical investment needed to attract business, create jobs, improve prosperity, and build climate resilience.

One important metric is the share of revenues the government collects from its population through taxes and other fees that goes to pay its foreign creditors. While the scale of the burden differs greatly across countries, it’s generally about two and a half times higher than a decade earlier.

This means for a typical low-income borrower the share has risen to about 14 percent, from about 6 percent, and as much as 25 percent, from about 9 percent in some economies. This is one of the key indicators used in the framework for assessing debt sustainability that signals a country might be at risk of needing financial support from the IMF or of missing a debt payment.

Low-income countries also have significant debt repayments falling due in the next two years. They need to refinance about $60 billion of external debt each year, about three times the average in the decade through 2020.

But with many competing demands for financing, including from advanced and emerging market economies that are also trying to adapt to climate change, there’s a significant risk of a liquidity crunch—failure to raise sufficient financing at an affordable cost. That could in turn lead to a destabilizing debt crisis.

To address this financing challenge, we must understand why it’s happening and what affected countries and the broader international community can do to help.

Exacerbating liquidity squeeze

One factor was higher government borrowing and deficits to mitigate the impact of the pandemic and other external economic shocks. This has increased the level of debt and consequently the cost of servicing it. It’s encouraging that this trend is reversing as countries bring primary deficits back in line with pre-pandemic levels.

In addition, central banks have significantly raised borrowing costs to tame inflation. That makes it costlier for governments to raise new debt or refinance existing debt. While central banks may be done raising rates, it is not clear when they will start to cut, and this uncertainty may be reflected in volatile financial market conditions.

Low-income countries have also increasingly borrowed from the private sector—with about one third of financing coming from private creditors in the last decade compared with about one fifth in the previous decade.

This reflected a slowdown in financing from multilateral development banks (MDBs) in the earlier part of the decade and through official development assistance (ODA) agencies over 2020-22 compared to borrowing needs. This shift has increased both financing costs and vulnerability to global financial shocks.

Avoiding a costly debt crisis

Building resilience in the face of these trends requires countries to act. Some countries have made progress— for instance, Angola,The Gambia, Nigeria, and Zambia have taken steps to implement significant energy subsidy reforms to create space for development spending.

But many are lagging behind, especially in efforts to increase revenues, such as broadening the tax base, reducing tax exemptions, and increasing the efficiency of tax administration.

For instance, the typical Sub-Saharan African country raised only 13 percent of gross domestic product in revenues in 2022, compared with 18 percent in other emerging economies and developing countries and 27 percent in advanced economies.

And those with high debt vulnerabilities can’t afford to wait. Policy reforms are needed to boost growth and capture more revenue from that growth, for instance, through tax reforms. This will directly improve countries’ key debt metrics and ensure they can avoid a costly debt crisis.

However, reforms take time to deliver results, so countries should also proactively work on mobilizing funding at lower costs, in particular grants. For some, this might mean turning to the IMF for help.

This is indeed one of our key roles—helping countries bridge a financing gap while working with them to strengthen their policy frameworks. Other partners, particularly MDBs or providers of ODA, may also be willing to extend financing, especially to support reforms that help address global challenges such as climate.

And official creditors face their own limitations. Efforts to ensure the IMF has sufficient resources to meet our members’ needs, together with efforts to scale-up MDB support, are critical. In the same vein, efforts to protect ODA budgets will ensure the least fortunate have the opportunity to participate more fully in the global economy.

More systemic solutions needed?

It is not yet clear whether country-driven actions and scaled-up multilateral financial support will be sufficient to address these challenges, but some analysts have begun questioning whether a more systemic approach to reprofiling or refinancing debt is needed.

Low-income countries can already seek debt relief through the Group of Twenty’s Common Framework, including to reduce their immediate debt servicing burden. To date the Common Framework has only been used to help countries reduce the level of debt (with the exception of the debt standstill agreed for Ethiopia).

But it was also intended to provide more temporary liquidity relief. However, to be effective in that role would require greater predictability and speed. There has been progress—the agreement on a debt treatment by official creditors for Ghana took less than half the time it took for Chad two years earlier—but continued engagement on technical issues, including through the Global Sovereign Debt Roundtable (established last year by the IMF, World Bank and G20), is important.

Overall, the funding squeeze facing low-income countries must be closely monitored. A scenario where sufficient low-cost funding materializes is possible, but there are also scenarios where more ambitious reforms, stronger international cooperation, and faster improvements in the global debt restructuring architecture may be necessary to help them emerge stronger and more resilient.

Chuku Chuku, Neil Shenai and Madi Sarsenbayev contributed to this post.

Source International Monetary Fund (IMF)

IPS UN Bureau

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By Ameenah Gurib-Fakim
PORT LOUIS, Mauritius, Jan 29 2024 – The Republic of Mauritius, an island nation, experienced its latest flash floods since the last bad one in 2013. These floods resulted in the loss of lives and hefty bills for car insurers with over 3000 cars have been damaged.

Unfortunately, we will go through more climate-related traumas because as an island nation we are sorely ill-prepared and we seem to be blithely oblivious to climate challenges especially when one takes a look at our development trajectory.

There is an urgent need to factor in resilience of our infrastructure; our adaptation strategy, the use of appropriate technology to inform and educate our people for better awareness and preparedness. When we look at recent tragedies, we cannot and must not put everything on the back of a changing climate, although I am sure the temptation is great in order to absolve one of his/her responsibilities. Urgent measures need to be put in place to counteract this new reality and also address our vulnerabilities.

There is no doubt that we will experience more devastating cyclones and they will take our economies back several decades.

It is the becoming increasingly clear that the way we urbanise, the resilience of our infrastructures, how ‘green’ we keep our buildings and landscape will all underscore how well we adapt to a changing climate.

Locally and in many parts of the world, there is a high proclivity to cut down big swath of forests, drain the ‘Ramsar-protected’ swamps which are the lungs the world; build bungalows on sea fronts; sacrifice century-old trees in the name of ‘development’; century-old drains which have survived the test of time, are now increasingly seeped in cement!

In many surrounding islands including Mauritius, buildings are seen popping up on the slopes of mountains. There’s also massive investment in infrastructure projects with no visibility on the ‘Environment Impact Assessments – EIA’ (absence of Freedom of Information Act in Mauritius prevents the public from accessing to these critical documents).

There’s also locally, no visibility on the Flood-prone zones which imply that people will keep building in these regions with the surreal consequences we have seen last week in Port Louis – cars piling up, flooded cemeteries reaching people’s homes, people being carried away by the sheer force of the water.

It is becoming abundantly clear that climate-related events will recur and we, as the human race, we have no choice but to adapt to our new realities. Time and time again, the rhetoric of ‘saving the planet’ is mentioned. It has to be brought home to all of us that Nature has existed before our appearance 200.000 years ago and will do well after we have gone. So let us not be presumptuous to even think that we can ‘tame’ or ‘save the planet’.. Our rhetoric must be couched in a the following language ‘how we save ourselves in the light of the crisis we have unleashed’!.. That would be more appropriate and much more in line of this truism which is facing us.

Part of our adaptation realities demand a culture of transparency, participatory-leadership, promote greater awareness among the general public on what’s at stake and more importantly, there has to be accountability from those who we vote to decide on our behalf. They cannot suddenly go mum when they are questioned or pass the buck to technical staff whose roles are, often purely advisory, when things start going south. The personal and material loss for the general public are simply too painful to see when entire lifetime efforts and savings are washed away by the gushing waters.

I am a resident of town called Quatre Bornes and which got badly affected by the recent floods. I am tempted to ask for this ‘confidential’ EIA report for the Quatre Bornes tram project so that we can be enlightened on the remedial actions going forward?

May be those who were at the helm in 2016 when the decision was taken to start this mega project can enlighten us ? No?

But this is where “Real politik” kicks in..

Those who were vociferously against this project during the electoral campaign, when they were in the Opposition (that was before they switched side and joined the winning party) are now its greatest defenders.

Some of those who actioned the decisions when in government are now in the Opposition and are expressing outsized aspirations for higher posts ..hmm.. at the next general elections??.

Really?

Transparency, Justice and Accountability are the virtues that the public demands what we certainly DONOT need are empty rhetoric and promises … The survival of our children and grandchildren depends on it and we have NO right to sacrifice their future through our inaction.

IPS UN Bureau

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Excerpt:

Ameenah Gurib-Fakim, PhD, Former President of the Republic of Mauritius

By Mario Osava
RIO DE JANEIRO, Jan 29 2024 – Artisanal mining, or “garimpo” as it is known in Brazil, has returned to the headlines as a factor in the deaths of Yanomami indigenous people, whose territory in the extreme north of Brazil suffers constant encroachment by miners, which has intensified in recent years.

In the first few days of the year, Yanomami spokespersons denounced new invasions of their land and the suspension of health services, in addition to the violence committed by miners or “garimpeiros”, which coincided with the fact that the military withdrew from areas they were protecting.

Furthermore, the media published new photos of extremely malnourished children. In response, the government promised to establish permanent posts of health care and protection in the indigenous territory.

“But what they are involved in there is not garimpo but illegal and inhumane mining practices,” said Gilson Camboim, president of the Peixoto River Valley Garimpeiros Cooperative (Coogavepe), which defends the activity as environmentally and socially sustainable when properly carried out.

“Garimpo is mining recognized by the Brazilian constitution, with its own legislation, which pays taxes, is practiced with an environmental license and respects the laws, employs many workers, strengthens the economy and distributes income,” he told IPS by telephone from the headquarters of his cooperative in Peixoto de Azevedo, a town of 33,000 people in the northern state of Mato Grosso.

Coogavepe was founded in 2008 with 23 members. Today it has 7,000 members and seeks to promote legal garimpo and environmental practices, such as the restoration of areas degraded by mining.

But it is difficult to salvage the reputation of this legal part of an activity whose damage is demonstrated by photos of emaciated children and families decimated by hunger and malaria, because the encroachment of miners pollutes rivers, kills fish and introduces diseases to which indigenous people are vulnerable because they have not developed immune defenses.

Garimpeiros and indigenous deaths

The humanitarian tragedy among the Yanomami people became big news in January 2023 when Sumaúma, an Amazonian online media outlet, denounced the deaths of 570 children under five years of age, due to malnutrition and preventable diseases, during the far-right government of former president Jair Bolsonaro (2019-2022).

Luiz Inácio Lula da Silva, who took office on Jan. 1, 2023, visited Yanomami territory and mobilized his government to care for the sick and expel illegal miners, destroying their equipment and camps. But a year later, the resumption of mining activity and a resurgence of hunger and deaths were reported.

Moreover, the entire extractivist sector has a terrible reputation due to tragedies caused by industrial mining. Two tailings dams broke in the southeastern state of Minas Gerais in 2015 and 2019, killing 289 people and muddying an 853-kilometer-long river and a 510-kilometer-long river.

Brazil is the world’s second largest producer of iron ore, following Australia. Iron ore is the main focus of industrial mining in the country.

Garimpo is mainly dedicated to gold, and accounts for 86 percent of its production. Garimpeiros also produce cassiterite (the mineral from which tin ore is extracted) and precious stones, such as emeralds and diamonds. Its major expansion, many decades ago, was along rivers in the Amazon jungle, to the detriment of indigenous peoples and tropical forests.

Indigenous people protest in the state of Roraima in northern Brazil against the invasion of Yanomami territory by garimpeiros or artisanal miners, who often practice illegally. CREDIT: Alberto César Araújo / Amazônia Real

Threat to the environment and health

Currently, 97.7 percent of the area occupied in Brazil by artisanal mining is in the Amazon rainforest, where it reaches 101,100 hectares, according to MapBiomas, a project launched by non-governmental organizations, universities and technology companies to monitor Brazilian biomes using satellite images and other data sources.

The production of gold uses mercury, which has contaminated many Amazonian rivers and a large part of their riverside population, including indigenous groups, such as the Munduruku people, who live in the basin of the Tapajós River, one of the great tributaries of the Amazon with an extension of 2,700 kilometers.

Garimpo dumps about 150 tons of mercury in the Brazilian Amazon rainforest every year, the World Wildlife Fund (WWF) estimates. The fear is that the tragedy of Minamata, the Japanese city where mercury dumped by a chemical industry in the mid-20th century killed about 900 people and caused neurological damage in tens of thousands, may be repeated here.

Brazil produced 94.6 tons of gold in 2022, according to the National Mining Agency. But the way it is extracted varies greatly, based mainly on informal mining, of which illegal mining makes up an unknown percentage.

Three prices govern this production, according to Armin Mathis, a professor at the Núcleo de Altos Estudos Amazónicos of the Federal University of Pará, who lives in Belém, the capital of this Amazonian state, with 1.3 million inhabitants.

The price of gold in Brazil; the price of diesel, which represents a third of the cost of gold mining; and the cost of labor are the three elements that determine whether the garimpo business is profitable, the German-born PhD in political science, who has been studying this activity since he arrived in Brazil in 1987, explained to IPS from Belém.

This mining was in fact artisanal, but it began to use machines, especially the backhoe, in the 1980s, which is why diesel increased its costs. And unemployment and periods of economic recession, in the 1980s and in 2015-2016, made garimpo more attractive.

In those periods and the following years, invasions of Yanomami territory, which also extends through the state of Amazonas in southwestern Venezuela, became more massive and aggressive. But the consequences for the native people living in vast areas of the rainforest only become news on some occasions, like now.

Small airplanes seized by police and environmental authorities were at the service of illegal miners in Roraima, an Amazonian state in the extreme north of Brazil. This is where most of the Yanomami Indians live, currently the main victims of illegal, mechanized mining. CREDIT: Federal Police

From artisanal to mechanization

Mechanization has restructured the activity. Machines are expensive and require financiers. Entrepreneurs have emerged to manage the now more complex operations, as well as others who only own and rent out the equipment.

In addition, the owners of small airplanes that supply the mining areas and facilitate the trade of the extracted gold became more powerful. The hierarchy of the business has expanded.

“We must differentiate between garimpo and the garimpeiros. This is not a rhetorical distinction. The garimpeiro, who works directly in the extraction of gold, is more a victim than a perpetrator of illegal, predatory and criminal mining. The person responsible lives far away and gets rich by exploiting workers in slavery-like labor relations,” observed Mauricio Torres, a geographer and professor at the Federal University of Pará.

“The garimpeiro, depicted as a criminal by the media, pays for the damage,” he told IPS by telephone from Belém.

The workers recognize that they are exploited, but feel that they are a partner of the garimpo owner, as they earn a percentage of the gold obtained. They work hard because the more they work, the more they earn.

A large part of the garimpeiros along the Tapajós River, where this kind of mining has been practiced since the middle of the last century, are actually landless peasant farmers who supplement their income in the garimpo business, when agriculture or fishing does not provide what they need to support their families, Torres explained.

Therefore, agrarian reform and other government initiatives that offer sufficient income to this population could reduce the pressure of the garimpo on the environment in the Amazon rainforest, which affects the region’s indigenous and traditional peoples, he said.

The situation of the garimpeiros also differs according to the areas where they work in the Amazon jungle, Mathis pointed out. In the Tapajós River, where the activity has been taking place for a longer period of time and is already legal in large part, coexistence is better with the indigenous Munduruku people, some of whom also became garimpeiros.

In Roraima, a state in the extreme north on the border with Venezuela and Guyana, where a large part of the territory is made up of indigenous reserves, illegal mining is widespread and includes the more or less violent invasion of Yanomami lands.

On the other hand, as the local economy depends on gold, the population’s support for garimpo, even illegal and more invasive practices, is broader than elsewhere. There, former president Bolsonaro, a supporter of garimpo, won 76 percent of the votes in the 2022 runoff election in which he was defeated by Lula.

Another component that aggravates the violence surrounding garimpo and, therefore, the crackdown on the activity, is the expansion of drug trafficking in the Amazon rainforest. The informality of the mining industry has facilitated its relationship with organized crime, whether in the drug trade or money laundering, said Mathis from Belém.