The global debt crisis is deepening. As interest rates rise, financing costs soar for governments and businesses. And even with lower inflation and improved financial conditions, many countries are still struggling to get back to robust growth. Financing needs are far higher than before the pandemic and there’s no sign of relief in sight.
Public debt can be a powerful development tool, but when it becomes excessive or costly it can become a burden. This is what is happening across the developing world, where 3.4 billion people live in countries that spend more on debt interest than on health or education. Since 2010, developing country debt has grown twice as fast as in advanced economies, and today it stands at $102 trillion.
While some of this debt is owed to official creditors, such as multilateral banks or other governments willing to lend on concessional terms for strategic reasons, most is held by private investors like hedge funds and investment banks who see low-income countries as a risky opportunity to make quick profits. Private lenders now hold more than half of developing country external debt, and their reckless lending practices are putting more countries at risk of unsustainable levels of debt.
The problem is that unlike individuals, who can file for bankruptcy, the international rules that govern sovereign debt mean that countries cannot. Instead, to qualify for a reduction in their borrowing costs, they need to agree to “structural adjustment programs”, often including reducing price controls, renegotiating contracts with the IMF and other creditors, and implementing layoffs. While these changes can help a country to grow out of its debt, they come at great cost to local economies and families, which are then left with less money to invest in things like education and health care.
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