Leaders of the world’s largest economies must recognize that a return to “normal” in our globalized world is not possible so long as the pandemic continues its grim march. It is myopic for creditors, official and private, to expect debt repayments from countries where those resources would have to be diverted from combating COVID-19.

CAMBRIDGE – As the COVID-19 virus spreads globally, economic paralysis and unemployment follow in its wake. But the economic fallout of the pandemic in most emerging and developing economies is likely to be far worse than anything we have seen in China, Europe, or the United States. This is no time to expect them to meet their debt payments, either to private or official creditors.

    With inadequate health-care systems, limited capacity to deliver fiscal or monetary stimulus, and underdeveloped (or nonexistent) social-safety nets, the emerging and developing world is on the cusp not only of a humanitarian crisis, but also of the most serious financial crisis since at least the 1930s. Capital has been stampeding out of most of these economies over the past few weeks, and a wave of new sovereign defaults appears inevitable.

    We have been consistently arguing the urgent need for a temporary moratorium on all debt repayment by any but the most creditworthy developing or emerging sovereign debtors. The case for a moratorium for distressed sovereign borrowers has many similarities to that for households, small businesses, and municipalities.

    Underscoring the urgency is the reality that the quarantine experience is starkly different in the developing world. In the vast slums of São Paulo, Mumbai, or Manila, quarantining can mean living in one small room with ten people, with little food or water and scant or no compensation for lost wages. If history is any guide, the supply disruptions that accompany the pandemic may soon be followed by food shortages.

    More than 90 countries have already sought emergency funding from the International Monetary Fund’s Rapid Financing Instrument (RFI) and World Bank resources. And in much of the developing world, the worst of the pandemic is not expected until later this year.

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