UPSC 2024 Expert Guide: Questions on ‘Global South and its Unsustainable Debt’ answered

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UPSC 2024 Expert Guide is an initiative by The Times of India where we share expert advice for IAS aspirants and get important mock practice questions answered and explained by Civil Services Exam (CSE) specialists for the upcoming Prelims and Mains exams. Today’s topic for mock question is Global South and its Unsustainable Debt. The questions, answers and explanations have been curated by Shubham Aggarwal, Director and Chief Mentor at Vidyapeeth IAS Academy.
Global South and its Unsustainable Debt: Why is it relevant for UPSC aspirants?
Candidates may face questions from this topic in:

  • UPSC Mains GS 3
  • Political Science and International Relations Optional
  • Interviews

Global South and its Unsustainable Debt: Model Questions for UPSC
Q.1 There is an element of injustice in the way the global debt is concentrated in the global south. Discuss (250 words, 15 marks)
Q.2 The countries of the global south have been facing high levels of unsustainable debt and critical balance of payment issues. What are the possible reasons and concerns regarding the same? (250 words, 15 marks)
Here is an analytical essay on Global South and its Unsustainable Debt for understanding and answering the above questions. Read on.
Global South and its Unsustainable Debt
More than 50 developing nations currently have a Debt-to-GDP ratio of above 60%. The pundits are calling it a near economic crisis in the global south with a large number of countries on the verge of defaulting on their Balance of payments. The economic outlook of these nations is subdued to disruptions in global supply chains, be it due to wars or the post-COVID deceleration in economic activity. The internal factors are equally responsible.
A recent UN report named “a world of debt.” laments that the global public debt has reached exorbitant levels above $90 Trillion post 2020. About one-third of this debt belongs to the developing countries, and out of this nearly two-thirds is held by India, China and Brazil alone. The issue has been high on the agenda in IMF and WB meetings.
Tourism dependent countries like Egypt have not yet recovered from the COVID setbacks. It is dealing with dwindling forex reserves, high inflation levels and unsustainable debt obligations. Similarly Ghana is at its worst economic crossroads with almost half of government earnings allocated towards debt payments. El Salvador is dealing with high debt service obligations backed by poor fiscal discipline and economic policies. Lebanon is constrained with high domestic corruption and cronyism, declining currency and lethargic central bank reforms. The Asian minnows Sri Lanka and Pakistan have defaulted on several International payments. Pakistan in particular has high levels of inflation, corrupt governors, a deep military-bureaucracy-militancy nexus which has not been considerate towards the poor population. China has been helping and restructuring it to a limited extent only. Ukraine has not been fulfilling its debt payments since the unprecedented war with Russia.
The reasons for spiralling debt in the Global Developing South can be attributed to

  • High cost of funds to these nations as a major chunk of soft loans are absorbed by the least developed nations (LDCs). The developing countries are charged higher rates by bilateral lenders as well as multilateral institutions.
  • The role of private lenders in their debt makes the debt rates market driven and thus lack humanitarian angle.
  • The development finance institutions like WB, IMF, ADB etc have the hegemony of the western world. The developing nations have a little say in this regard.
  • The global factors like Russia-Ukraine war, Terrorism, Climate Change, the COVID pandemic, Chinese Cheque Book/Debt Trap diplomacy have all had a major role as well in deepening the debt crisis.
  • Domestic factors have played their part as well in the form of poor fiscal responsibility and budget management, corruption and accountability issues, lack of central bank oversight and populism by the political parties, etc. a majority of the developing states are soft states.

The possible implications of the same me be stated as
Unsustainable debts, debt traps, more sovereign debt crisis, more restructuring of these debts and finally the government failures leading to legitimacy crisis.
The development takes the back seat as the major portion of government revenues goes towards debt servicing.
It may also escalate the already alarming climate crisis, because the climate funds from the developed world are already meagre and these poorer nations lack the capacity to transition into a green economy.
Legitimacy crisis in such economies is on the cards as the development deficit results into governance issues, social conflicts, political turmoils, etc.
The crisis in a country can easily spillover to a region and turn into a global crisis
The way forward in the above scenario can be increased transparency in disclosing the sovereign debt figures by nations, reforming the international developmental and financial institutional architecture with more inclusivity and accountability, making the fiscal responsibility and budget management laws more stringent in respective economics and focus on the climate justice by transfer of funds from the rich to the poorer nations.
(The views shared in this article are personal. The expert can be reached at 0306shubham@gmail.com. His specialisations include General Studies, Political Science and International Relations Optional)



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