Nepal Needs Total Debt Cancellation To Face The COVID-19 Crisis

23 April by Praman Adhikari

The devastation caused by the coronavirus pandemic is a serious threat which has brought our civilisation and economies at the brink of collapse. The current crisis in every sector of our lives has revealed how weak our system is when it comes to fighting back and containing the spread of the virus. As we are observing the devastation of the pandemic in Europe, China and the United States of America, the gradual increment of active cases in South Asian countries is very much alarming especially, considering the public health care system and infrastructure of the eight countries of the region.

Though surrounded by two big giants and emerging economies of the world, China in the North and by India in the rest, Nepal is highly incapable to cope with the pandemic situation at present and in the future. Nepal also, is one of the Least Developed Countries(LDC) out of four countries of the region. After having 48 coronavirus cases as on the morning 24 April 2020, people’s fear of being susceptible to the pandemic and its looming devastation in Nepal is gradually increasing. The poor status of doctor-patient ratio, 1724:1, is below the prescribed limit of 1000:1 by the World Health Organisation (WHO) [1]. The availability of ventilators for the critical condition in the case of a mass outbreak is also dismal having 1:114000 people [2] and also 50 beds per 10,000 population [3]. The government’s plan to graduate from LDC status by 2022 is hugely impacted because of the type of vulnerabilities that the country is facing due to the outbreak of the coronavirus across the world. The devastation caused by predatory neoliberal policies is apparent unmasking its inhuman and profit-mongering nature. The neoliberal policies have already weakened the state mechanisms and plundering people’s money and resources making them vulnerable by imposing conditionalities to cut subsidies and ultimately dismantling the basic services that every human being is entitled to receive, easily and equally.

The World Bank estimations suggests that the economic growth of Nepal will range between 1.5 to 2.8 per cent which is rapidly slowed down by the lower remittances and trifling trade and dismal state of tourism [4]. Nepal’s heavy dependence on remittance which contributes 30 per cent of Gross Domestic Product (GDP) is one of the major challenges to reboot the dream of having a double-digit economic growth as the COVID-19 crisis has equally impacted the economies of the labour receiving countries and most of the migrants workers are losing and going to lose their jobs soon. At the time, when global economic slump is in motion, even if Nepal manages to control the mass outbreaks, it will still be impacted by the economic fallout remaining at the risk of a debt crisis. In the richer countries, with much more developed public health systems, the combined effects of 40 years of neoliberal policies and the lack of preparedness of public authorities have had tragic effects. It is easy to imagine what this can lead to elsewhere. Countries in Africa, Latin America and the Caribbean, and Asia have begun to be heavily affected by the health crisis [5]. According to Oxfam, the economic fallout from the coronavirus pandemic could push half a billion more people into poverty unless urgent action is taken to bail out developing countries [6]. Under the most serious scenario – a 20% contraction in income – the number of people living in extreme poverty would rise by 434 million people to nearly 1.2 billion worldwide [7].

Nepal needs more medical staff, more hospitals, more medical supplies and more resources to stand and to walk for the better preparedness in the time of crisis like COVID-19 pandemic has brought. The so-called top economies and self-proclaimed top countries having better health facilities are miserably losing their fight against this pandemic. The so-called immediate response by the International Financial Institutions (IFIs) to help poor countries fighting the COVID-19 pandemic through emergency assistance is another debt trap which ultimately weakens the basic and essential services of those countries. Even in the crucial time when the whole world system is at the brink of collapse, the IFIs are concerned with the debt trap that they have installed across the world. The urgent call of the time for action is to cancel all external debts, bilateral, multilateral (public and private), so that the LDCs like Nepal can concentrate their resources and funds on building basic infrastructures to strengthen quality basic services to the people rather than reducing the essential costs to repay the debts.

As the renowned historian and political scientist Eric Toussaint has opined on the importance of debt cancellation, states which are aggravated by the underfunding of public health in the global South and in the North due to debt repayment and budget cuts in basic services could utilise those resources to strengthen their public health system, for example, staffing, medical equipment, medicine stock, infrastructure, research, production of medicines etc. which could have reduced the number of infections and fatalities and limit the spread of the virus which is taking place so drastically [8] at present.

In 2015, immediately after the devastation caused by the Gorkha earthquake on 25 April, the call for immediate cancellation of external debts was raised by various civil society organisations to get more support on the relief and reconstruction programmes, but sadly, nothing happened. Following the recent call from the UNCTAD to cancel $ 1 trillion owed by the developing countries [9], the decision of IMF Executive Board to provide immediate debt relief to 25 IMF member countries, including Nepal, under Catastrophe Containment and Relief Trust (CCRT) [10] is not enough to fight the current pandemic and its grave impacts on the sustainability of the development. This much touted IMF grant will, actually, be needed to be reimbursed. In Nepal, the external debt stands at 56.49 per cent of the total government debt. Total debt to GDP ratio is 30 per cent in which the external debt accounts 16.98 per cent [11]. The call from various civil society organisations ( [12], [13], [14]etc.) at national, regional and global levels for the cancellation of external debts is a welcome step which needs deeper engagements to make it a reality because the debt cancellation opens the new avenues for the hard-hit countries to rise from the devastation caused by the COVID-19 pandemic.

This situation is not normal. The current crisis is bringing fundamental changes to the context that we had in the past. Local and national economies are devastated, regional and global economies are in a slump, the dreary state of basic public services raises its ugly head time and again. The COVID- 19 has posed a serious threat to the population and because of this, the situation needs a concerted effort from the government of Nepal which demands a larger amount of money and resources to strengthen its battle against the possible mass outbreak and pandemic situation. The legal concept of ‘the State of Necessity’ makes the much-needed action by the government to unilaterally declare the suspension of debt repayment possible. Similarly, the ongoing COVID- 19 crisis is bringing fundamental change in the circumstances which makes the situation uncontrollable to the debtor disabling them to adhere to the contractual agreements. Invoking debt repayments and conditionalities due to the shocks that are out of debtor’s controls to survive the devastation is also known as Force Majeurein which the state can unilaterally decide to suspend the debt repayment.

The process of total debt cancellation will also address the people’s demand of cancelling all illegitimate and odious debts that are amassed and misappropriated by the various autocratic rulers and governments in the past which were mostly used against the people’s interest and wellbeing. The most important basic requirement to make the debt cancellation just and effective is the non-payment of the debt is used to fight the coronavirus pandemic and the economic crisis the pandemic has brought. In this stage, the role of people in strict monitoring of the government’s action is extremely important if it is being mobilised and used for the best interests of the people [15]