No fewer than 3.3 billion people live in 48 countries that spend more on servicing their debts than on education or health, a new report by the United Nations Conference on Trade and Development (UNCTAD) has indicated.
Titled, “A World of Debt: A Growing Burden to Global Prosperity,” the report submitted that developing countries were dealing with an international financial architecture that exacerbates the negative impact of cascading crises on sustainable development.
The burden of debt on development, it stated, was intensified by a system that constrains developing countries’ access to development finance and pushes them to borrow from more expensive sources, increasing their vulnerabilities and making it even harder to resolve debt crises.
According to the report, in 2022, global public debt – comprising general government domestic and external debt reached a record $92 trillion, with developing countries owing almost 30 per cent of the total, of which roughly 70 per cent was attributable to China, India and Brazil.
Public debt has also spiked more than five-fold since 2000, the report added.
The report submitted shows that countries were facing an impossible choice of servicing their debt or serving their people, adding that a world of debt disrupts prosperity for people and the planet.
It revealed that African countries borrow on average at rates that are four times higher than those of the United States and even eight times higher than those of Germany.
It stated that 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, adding that interest payments were growing faster than other public expenditures.
It acknowledged that public debt could be vital for development, as governments use the same 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. Public debt has reached colossal levels, largely due to two factors.
“Financing needs soared with countries’ efforts to fend off the impact of cascading crises on development. These include the COVID-19 pandemic, the cost-of-living crisis, and climate change.
“An unequal international financial architecture makes developing countries’ access to financing inadequate and expensive.
“The weight of debt drags down development. Debt has been translating into a substantial burden for developing countries due to limited access to financing, rising borrowing costs, currency devaluations and sluggish growth.
“These factors compromise their ability to react to emergencies, tackle climate change and invest in their people and their future.
“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,” the UNCTAD report explained.
Public debt around the world has been on the rise over the last decades. Cascading crises in recent years triggered a sharp acceleration of this trend.
As a result, global public debt has increased more than five-fold since the year 2000, clearly outpacing global GDP, which tripled over the same time.
The UNCTAD report lamented that developing countries are dealing with an international financial architecture that exacerbates the negative impact of cascading crises on sustainable development.
The burden of debt on development was intensified by a system that constrains developing countries access to development finance and pushes them to borrow from more expensive sources, increasing their vulnerabilities and making it even harder to resolve debt crises, it added.
Noting that borrowing from foreign creditors increases exposure to external shocks, the report stressed that developing countries’ total public debt increased from 35 per cent of Gross Domestic Product (GDP) in 2010 to 60 per cent in 2021.
Similarly, external public debt, the part of a government’s debt owed to foreign creditors, increased from 19 per cent of GDP to 29 per cent of GDP in 2021.
According to UNCTAD, comparing debt levels to developing countries’ ability to generate foreign exchange through exports showed that their ability to generate sufficient revenue to service their external debt obligations has also been deteriorating.
“The share of external public debt to exports increased from 71 per cent in 2010 to 112 per cent in 2021. During the same period, external public debt service as a share of exports increased from 3.9 per cent to 7.4 per cent.
“Developing countries face additional major challenges due to high levels of external public debt, which make them more vulnerable 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. Relying on private creditors makes credit expensive and debt restructuring complex,” the report stated.
According to the report, the United Nations (UN) has a road map of multilateral actions to address the global debt burden and achieve sustainable development.
“The roadmap is laid out in Our Common Agenda Policy Brief on Reforms to the International Financial Architecture and the SDG Stimulus, which focuses on three areas of action.
“These include tackling the high cost of debt and rising risks of debt distress, massively scaling up affordable long-term financing for development, and expanding contingency financing to countries in need.
“The implementation of these actions is crucial to unleash the resources needed to build a more prosperous, inclusive, and sustainable world,” the report stated.
Ndubuisi Francis
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