The United Nations Conference on Trade and Development (UNCTAD) has released a damning

report into the draining effects of “colossal levels” of public debt on global prosperity.

Whilst the permanent intergovernmental body recognised that Governments do productively use
finance to fund expenditure in supporting their populations, it also described the situation across
the developing world as “a heavy burden when public debt grows too much or too fast.”

UNCTAD said that two factors were largely responsible; firstly, the developmental impact of
“cascading crises”, like the pandemic, rising living costs and climate change; and secondly, the
inequality of international financial architecture that hampered affordable access to finance for
developing nations.

Declaring that the weight of debt dragged down development, the UNCTAD report said:
“Countries are facing the impossible choice of servicing their debt or serving their people.
Today, 3.3 billion people live in countries that spend more on interest payments than on
education or health. A world of debt disrupts prosperity for people and the planet. This must
change.”

It referenced the United Nations road map, laid out in Our Common Agenda Policy Brief on
Reforms to the International Financial Architecture and the SDG Stimulus, which focussed on
the three areas of multilateral actions needed to address the global debt burden and achieve
sustainable development.

 tackling the high cost of debt and rising risks of debt distress,
 massively scaling up affordable long-term financing for development, and
 expansion of contingency financing to countries in need.
UNCTAD said their collective implementation was “crucial to unleash the resources needed to
build a more prosperous, inclusive, and sustainable world.”

Sharply accelerating and more widespread public debt

Sharply accelerating public debt – comprising general government domestic and external debt –
had increased fourfold since 2000, according to calculations by the UN Global Crisis Response
Group, based on the IMF World Economic Outlook of April 2023. This had clearly outpaced
global GDP, which had tripled over the same period.

In 2022, debt levels had reached a record USD 92 trillion, with almost 30% of that figure being
attributable to developing countries – three quarters of which was owed by China, India and
Brazil.
Key takeaways from the Group’s analysis showed:

 The overall number of countries facing high debt levels rose significantly – from 22 in
2011 to 59 in 2022.
 Between 2010 and 2021, developing country total public debt soared from 35% of GDP
to 60% in 2021.
 Government debt owed to foreign creditors increased from 19% of GDP to 29% of GDP
in 2021.
 By 2021, the portion of external public debt owed to private creditors accounted for 62%
of developing country total external public debt.
Meanwhile, developing countries were also found to be struggling to generate sufficient
revenues to service their external debt obligations, with the share of external public debt to
exports increasing from 71% in 2010, to 112% in 2021. And over the same period, as a share of
exports, external public debt service nearly doubled from 3.9% to 7.4%.

In addition, high levels of public debt were said to have made developing countries more
susceptible to external shocks. “When global financial conditions change or international
investors become more risk-averse, borrowing costs can shoot up suddenly. Similarly, when a
country’s currency devalues, debt payments in foreign currency can skyrocket, leaving less
money for development spending,” UNCTAD observed.

Expensive credit and debt restructuring complexity

It was noted that increasing developing country reliance on public debt loans from private
creditors – including bondholders, banks and other lenders – presented two challenges.

Firstly, borrowing privately on commercial terms was more expensive than concessional
financing from multilateral and bilateral sources. Secondly, the growing complexity of the
creditor base and delays in debt restructuring loaded the costs of debt crisis resolution.

On average, it cost African countries four times more to borrow money than the United States
and eight times as much as Germany.

“High borrowing costs make it difficult for developing countries to fund important investments
which, in turn, further undermines debt sustainability and progress towards sustainable
development,” the report conveyed.

Prioritising available finance – on debt or people?

The cost of borrowing has become a widespread problem over the last decade amongst
developing countries, with over half of nations setting aside more than 1.5% of GDP and 6.9% of
government revenues for interest payments. In 2020, 55 nations – nearly twice the number
recorded in 2010 – were devoting over 10% of public revenues to interest spending, with some
now allocating more towards debt than their own people.

Aggregate interest rate spending for developing countries between 2010-12 and 2019-2021 stood
at 60.4% – compared to Education (40.8%), Investment (41.1%) and Health (54.7%). Broken
down regionally, this equated to:

 In Africa, the amount spent on interest payments was higher than spending on either
education or health.
 Developing countries in Asia and Oceania (excluding China) allocated more funds to
interest payments than to health.
 In Latin America and the Caribbean, developing countries devote more money to interest
payments than to investment.
 Globally, rising debt burdens are preventing countries from investing in sustainable
development.
The UN Global Crisis Response Group figures revealed that “an increasing number of countries
find themselves trapped in a situation where both their development and their ability to manage
debt is compromised.”

Their assessment continued: “In total, 48 countries are home to 3.3 billion people, whose lives
are directly affected by underinvestment in education or health due to large interest payment
burdens.”

To address global debt challenges and to achieve sustainable development, in the SDG Stimulus
package and the Summit for the Future’s International Financial Architecture policy brief, the
United Nations had outlined a clear way forward, summarised as:

 Making the system more inclusive.

 Tackling the high cost of debt and rising risk of debt distress and creating a debt workout
mechanism.
 Providing greater liquidity in times of crisis, expanding contingency finance.
 More and better finance, massively scaling-up affordable long-term financing.
As for inequality – the concluding message was simple: This must change.

Public debt can be vital for development.

Governments use it to finance their
expenditures, to protect and invest in
 their people, and to pave their way to a
better future. However, it can also be a
heavy burden, when public debt grows
too much or too fast. This is what is
happening today across the developing
world.

Global public debt has reached a record high of US$ 97 trillion in 2023.Although
public debt in developing countries reached less than one third of the total – US$
29 trillion – since 2010 it has grown twice as fast as in developed economies.

There is a stark contrast among developing regions. Asia and Oceania hold 27 % of
global public debt, followed by Latin America and the Caribbean (5%), and Africa
(2%). The burden of this debt varies significantly, with countries' ability to repay it
exacerbated by inequality embedded in the international financial architecture.

Developing countries are now facing a growing and high cost of external debt. Debt
service on external public debt reached US$ 365 billion in 2022, equivalent to 6.3%
of export revenues. For comparison, the 1953 London Agreement on Germany’s war
debt limited the amount of export revenues that could be spent on external debt
servicing (public and private) to 5% to avoid undermining the recovery.

This dynamic is largely a result of high borrowing costs which increase the
resources needed to pay creditors, making it difficult for developing countries to
finance investments. Developing regions borrow at rates that are 2 to 4 times
higher than those of the United States and 6 to 12 times higher than those of
Germany.

Moreover, developing countries experienced a net resource outflow when they

could least afford it. In 2022, developing countries paid US$ 49 billion more to their
external creditors than they received in fresh disbursements, resulting in a
negative net resource transfer.

The impact of these trends on development is a major concern, as people pay the
price.

The increase in interest rates by central banks worldwide since 2022 is having a
direct impact on public budgets. Developing countries’ net interest payments on
public debt reached US$ 847 billion in 2023, a 26% increase compared to 2021. In
the same vein, in 2023 a record 54 developing countries, equivalent to 38% of the
total, allocated 10% or more of government revenues to interest payments.
Developing countries’ interest payments are not only growing fast, but they are
outpacing growth in critical public expenditures such as health and education. As
a consequence, interest payments are constraining spending across developing
countries. For example, during the initial years of the COVID-19 pandemic, Africa
and Asia and Oceania (excluding China) spent more on interest payments than on
health.

Overall, a total of 3.3 billion people live in countries that spend more on interest
payments than on either education or health. Moreover, in emerging and
 developing countries interest payments outweigh climate investments, thus
slowing down efforts towards climate change adaptation and mitigation.

Developing countries must not be forced to choose between servicing their debt
or serving their people. Instead, the international financial architecture must
evolve to ensure a prosperous future for both people and the planet. To address
these challenges and achieve sustainable development, the United Nations
outlines a clear way forward in the SDG Stimulus package and the Summit of
the Future’s policy brief on the Reforms to the International Financial
Architecture.
Key statistics
US$ 29 trillion

Developing countries public debt in 2023.

US$ 847 billion

Developing countries net interest payments on public debt in 2023.

54 developing countries

Spend more than 10% of their revenues on net interest payments

US$ 49 billion

Developing countries experienced a negative net resource transfer in 2022,

paying more to external creditors than they received in new disbursements.
48 developing countries

Spend more on interest payments than on either education or health.

3.3 billion people

Live in countries that spend more on interest payments than on either education
or health.
at are the Key Highlights of the Report?
Rapid Increase in Public Debt:
Institute of International Finance (a global association of financial institutions)
has estimated that global debt (including borrowings of households, businesses
and governments) has reached USD 315 trillion in 2024, which is 3 times the
global Gross Domestic Product (GDP).
Global public debt is rising rapidly, due to a combination of recent crises (such as
Covid-19, rising food and energy prices, climate change, etc.) and a sluggish
global economy (slowing growth of economy, rising bank interest rates etc).
Net interest payments on public debt reached USD 847 billion in 2023 in
developing countries, a 26% increase compared to 2021.

Regional Disparity in Debt Growth:

Public debt in developing countries is rising at twice the rate of that in
developed countries.
It reached USD 29 trillion (30% of the global total) in 2023, increasing from
16% in 2010.
Africa's debt burden is growing faster than its economy leading to a rise in the
debt-to-GDP ratio.
The number of African countries with debt-to-GDP ratios above 60% has
increased from 6 to 27 between 2013 and 2023.
This is due to unforeseen global issues impacting their expansion and reduced
domestic income as a result of a slow economy.
Higher Debt Servicing Share of Income & Impact on Climate Initiatives:
Roughly 50% of developing countries are now dedicating a minimum of 8% of
their government revenues to servicing their debts, a number that has increased
twofold in the last ten years.
Currently, developing nations are spending a greater portion of their GDP on
paying off interest (2.4%) than on climate efforts (2.1%).
Their ability to address climate change is being constrained by debt. In order to
meet the targets of the Paris Agreement, there is a requirement to raise climate
investments to 6.9% by 2030.
3 Shifts in Official Development Assistance (ODA):
ODA is government aid aimed at promoting economic development and welfare
in developing countries.
Repaying loans has become more difficult for developing countries, due to recent
changes made in nature of foreign aid such as:
Decreasing Overall Aid: ODA has been decreasing for two years in a row,
dropping to USD 164 billion in 2022.
More Loans and Less Grants: The proportion of aid given as loans is
increasing, rising from 28% in 2012 to 34% in 2022. This creates debt
burdens for developing countries.
Less Help with Existing Debt: Funds for dealing with debt, like debt relief and
restructuring, have dropped significantly from USD 4.1 billion in 2012 to just
USD 300 million in 2022. This makes it harder for them to deal with their
current borrowing and could limit their ability to access future loans.

What are the Initiatives Related to Solving Debt Crisis?

Heavily Indebted Poor Countries (HIPC) Initiative:
The IMF and World Bank's initiative tackles debt crises in the world's poorest
countries. It recognises their struggle to repay debts without sacrificing crucial
investments. By offering debt relief, the program frees up resources.
This allows these nations to invest in healthcare, education, and poverty
reduction, promoting long-term economic growth and social progress.
Debt Management and Financial Analysis System (DMFAS) Programme:
UNCTAD's DMFAS program helps developing countries manage debt
responsibly. It provides training and technical support to improve their
borrowing practices, including tools for recording debt, assessing risks, and
negotiating effectively.
This program promotes sustainable debt management so these countries can
borrow for development without creating future crises.
Global Sovereign Debt Roundtable (GSDR):
The roundtable is co-chaired by the IMF, World Bank and G20 presidency, which
aims to address debt challenges comprehensively. It brings together debtor
countries and creditors with the objective of fostering a greater common
understanding among key stakeholders on issues related to debt
sustainability, debt restructuring challenges, and potential solutions.
 What Measures should be taken to Address the Global Debt Crisis?
Inclusive Governance, Transparency and Accountability:
The World Bank's 2022 International Debt Statistics report highlights a
concerning rise in public debt, particularly for low-income countries, thus
increased participation for these nations in decision-making processes is
essential.
The UN Office for Sustainable Development emphasises that financial
transparency and accountability are crucial for preventing debt crises.
Contingency Financing:
The IMF performs a vital role in providing emergency financial support.
A 2019 IMF Report titled "Three Steps to Avert a Debt Crisis" proposed
measures like increased access to Special Drawing Rights (SDRs) to bolster
developing countries' reserves during emergencies.
Managing Unsustainable Debt (Managing Debt Challenges):
Existing frameworks for debt restructuring, such as the G20 Common
Framework for Debt Treatment should be improved.
In addition, including automatic provisions for suspending debt payments for
countries facing crises would offer essential flexibility to help them stabilize
their economies.
Scaling up Sustainable Financing:
Multilateral Development Banks (MDBs) need to be transformed to play a more
prominent role in long-term financing for Sustainable Development Goals
(SDGs).
Attracting private investment towards sustainable projects like clean energy is
also crucial. Fulfilling existing commitments for aid and climate finance,
particularly for developing countries, is essential for facilitating this transition.

G20 Common Framework for Debt Treatment

It is an initiative established in 2020, endorsed by the G20, in collaboration with
the Paris Club to provide structural support to Low-Income Countries (LICs)
facing unsustainable debt burdens.
This framework aims to offer a coordinated and comprehensive approach to
tackling the severe debt challenges faced by LICs, which have been worsened
by the Covid-19 pandemic.