As global economic growth stabilizes and interest rates decline, the debt crisis ravaging low-income countries hasn’t gotten better. In fact, it has worsened. The rapid build-up of debt in developing economies is at a dangerous level that depresses investment and diverts resources away from essential services. It is also fueling the most threatening trade war in decades and undermining efforts to reduce poverty, inequality, and climate change.
The massive debt service obligations poor countries owe to bilateral, multilateral and private creditors directly take resources from investments that benefit ordinary people and promote economic development. These include health centers that lack drugs, schools without qualified teachers and basic equipment, and agricultural extension services. In addition, debt repayments are often conditioned by austerity programs that impose fiscal consolidation, public expenditure reductions and user fees (like on energy and water) that can restrict access to these essential services for women and girls.
Across the globe, more than half of low-income countries are in debt crises or at high risk. These are defined by Debt Justice as having public and/or private debt trajectories that are unsustainable, including in the face of overlapping shocks like the COVID-19 pandemic, the war in Ukraine, rising global interest rates, increased risk aversion and higher trade tariffs.
A growing number of countries face a double threat of public and private debt stress, as debt levels rise at an accelerating pace alongside the increasing concentration of private credit in the hands of foreign investors and vulture funds. Amid these challenges, it is crucial to prioritize gradual debt adjustments and a credible medium-term plan to reduce public debt while avoiding crowding out private investment.
About the Author
