About 3.3 billion people now live in countries where debt interest payments are greater than expenditure on health or education even as the global public debt reached an all-time high of $92 trillion in 2022. This comes up in a report titled “A world of debt: A growing burden to global prosperity“.
The report highlights the urgency for immediate action to address this escalating crisis, particularly affecting developing countries.
ESCALATING CRISIS AND INEQUALITY
Since 2000, public debt levels have risen five-fold, necessitating immediate measures to tackle the crisis, especially in developing countries. The United Nations Secretary-General emphasizes the disparity in interest rates, with African countries paying four times more than the United States and eight times more than the wealthiest European economies for borrowing. Disturbingly, 52 countries, nearly 40 percent of the developing world, face serious debt troubles.
BURDEN ON DEVELOPING NATIONS
The international financial system’s inherent inequality becomes apparent in the burden placed on developing countries. Half of all developing nations allocate a minimum of 7.4% of their export revenues to service external public debt. Of significant concern is the rapid growth of interest payments, surpassing investments in critical sectors like health and education. Shockingly, the report reveals that at least 19 developing nations allocate more funds to interest payments than education, while 45 allocate more to interest than health expenditure.
COMPLEXITIES OF DEBT RESTRUCTURING
The reliance on private creditors has further complicated debt restructuring for developing countries. Private creditors now hold 62% of external public debt, compared to 47% a decade ago. The lack of a mechanism to address debt restructuring across different creditor classes exacerbates the challenges faced by these countries.
CALL FOR COMPREHENSIVE REFORM
The United Nations calls for a comprehensive reform of the International Financial Architecture, including the debt architecture, to create a more inclusive system empowering developing countries in the governance of the international financial system. Addressing the high cost of debt and the risk of debt distress is of utmost importance.
URGENT MEASURES
To expedite progress under the G20 Common Framework for Debt Treatment, the establishment of a debt workout mechanism is crucial. This requires addressing creditor coordination issues and incorporating automatic debt service suspension clauses. Developing countries, especially those with high debt burdens, require increased liquidity during crises to prevent a liquidity crisis from turning into a debt crisis. Measures such as enhancing the use of Special Drawing Rights, temporarily suspending IMF surcharges, and broadening access to emergency financing are essential.
AFFORDABLE LONG-TERM FINANCING AND CONCESSIONAL FINANCE
Significant efforts are needed to increase affordable long-term financing. This involves transforming and expanding Multilateral Development Banks to support sustainable long-term development and mobilizing more private resources on equitable terms. Additionally, there is an urgent need for more concessional finance to fulfil aid and climate finance commitments.
The soaring global public debt poses severe challenges to global prosperity, particularly for developing countries. Immediate action is necessary to address this crisis and promote a more inclusive international financial system. The report’s recommendations encompass comprehensive reform, debt workout mechanisms, and increased liquidity during crises, and efforts to secure affordable long-term financing. By implementing these measures, the world can strive towards a more sustainable and equitable global economic landscape.
