Evaluation of debt moratorium, a financial solution during the COVID-19 pandemic: The pros and cons

Background and objective

According to TransUnion’s research, almost eight in ten South Africans say their household income has been cut by the Covid-19 pandemic, while one in ten had already lost their jobs (West, 2020). The corona virus came at a time when the budgets of several countries already suffering from the severe impact of common security challenges and climate change (Wadagni, 2020). A loss of income results in an inability to service debt. A strategy had to be devised. This paper seeks to evaluate debt moratorium, one of the financial solutions to this crisis.

What is a debt moratorium?

A moratorium is a temporary period during a loan term when the borrower is not obliged to make a payment (Bankrate ®, 2020). Over the last thirty years as wages have stagnated across South Africa, average household debt has more than doubled (Strike Debt, 2014). Increasingly, people are forced to take on debt to meet their needs; from housing to education and medical care (Strike Debt, 2014). High debt and low income disenable many households, producers and sectors of the government from meeting their short and long-term obligations.  The core question is whether or not a debt moratorium is an effective solution to the current global crisis. 

Does a repayment break result in increased disposable income?

The head of Budget Analysis of Alternative Citizen Space, Qutes Hassane Boukar, supports the idea of a debt moratorium. He says that   a debt moratorium enables states to mobilize the resources they could have committed to repay the public debt to fighting COVID-19??  (Garcia, 2020). Munevar (2020) concurs.  This view assumes that the amount that would have been set aside to repay debt is sufficient to tackle socio-economic issues heralded by COVID-19 in the affected nations. Click here to read full paper. 

(The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the organization, FES South Africa.)