The Iran war and the global debt shock it fueled |
N'DJAMENA, Chad – As everyone knows, the war in the Middle East has caused a sharp spike in oil, gas and food prices, creating severe economic hardship worldwide, and especially in developing countries. But less well understood is the war’s effect on government borrowing costs. Across the Global South, what began as a price shock has morphed into a debt shock.
The seeds of the current crisis were sown during the period of low interest rates in the 2010s, when low- and lower-middle-income countries borrowed heavily in dollars. Many invested these funds productively and reaped the rewards of stronger economic growth. But after the COVID-19 pandemic, global interest rates rose and the U.S. dollar strengthened, making borrowing........