Multilateral entities refer to lending organizations that have been established by multiple countries, such as World Bank, World Trade Organization, IMF, and various UN agencies. These institutions are created for the purpose of providing financial and professional advice to help in the development of member countries. Memberships include both developed donor countries and developing borrower countries. Multilateral entities finance projects in the form of long-term loans determined by the market rates, through grants and long- term loans also known as credits.
These countries owe most of their external debt to multilateral entities;
This West African country owes 78.1% of its external debt to multilateral finance organizations. From 1997, Burkina Faso has benefited from an initiative to support heavily indebted countries with development assistance from IMF and World Bank. The loaned money has been used to fight poverty, provide basic education and literacy, protection of pastoral services and livestock, technical training development and information and communication technologies.
Nepal relies heavily on external financial aid from World Bank and Asian Development Bank (ADB). Financial aid from these banks constitutes 77.3% of the total external debt. The Nepalese government's external debt is $3.8 billion of which approximately $1.2 billion is owed to ADB and $1.1 billion to the World Bank. In the recent wake of earthquakes in Nepal, where many were killed and property destroyed, the World Bank and other multilateral entities have provided more money for development. There, however, seems to be little development going on and many questions have come up as to whether the money has been misused in the name of infrastructural development.
St. Vincent and Grenadines
The external debt owed to multilateral entities is 73.8% for the Caribbean country. Despite showing minimal improvements in debt performance, St. Vincent and Grenadines still owes the Eastern Caribbean Central Bank a huge chunk of its external debt.
As of 2013, the gross external debt of Botswana was $3.4 billion which has increased relative to GDP due to the depreciation of the country’s currency against USD. The external debt is at 73.3% of the total national debt. Most of the loaned money comes from multilateral organizations such as International Bank for Reconstruction and Development and African Development Bank.
Factors Contributing To Debt Crisis
Most developing countries have succumbed to the external debt crisis, with a big percentage of their borrowed money coming from multilateral agencies. Countries such as Lesotho, Benin, Uganda, Mali, Eritrea, and Madagascar have over 60% of their national debt owed to external financiers.
The enormous debts have impeded human development in these countries which has had lasting implication on the overall economic growth.
Poor management and government policies have made it impossible to recover from debt. The trend in most of these countries seems to worsen every day. Additionally, third world countries have to pay the loans in hard currencies such as Japanese Yen, Euro or US dollar, compared to their soft currencies which easily fluctuate in value.
Political instability is also a major contributing factor in the increasing external debts. A lot of time and resources is spent trying to reinforce law and order, rebuilding the country and solving the crisis. This situation inevitably leads to more borrowing.