Accumulation of immense public debt reaching a staggering $31 trillion in developing nations.
Burdened by Debt: Developing Countries Struggle for Financial Freedom
The weight of global debt is steadily mounting, with developing countries carrying a hefty share. By 2024, these nations are expected to owe a staggering $31 trillion, accounting for a third of the total global debt, which reaches $102 trillion. In 2024, they'll hand over a record-breaking $921 billion in interest, marking a 10% increase from 2023.
Despite viewing public debt as a potent tool for development, UNCTAD acknowledges that when it spirals out of control or interest payments become excessive, it becomes a "heavy burden" on these countries. In fact, this situation is all too common today across the developing world.
Among the report's key findings, public debt has surged twice as fast in developing countries as in developed economies since 2010. The cost of servicing this debt is steep, with half of developing nations paying an average of 6.5% of their income in 2023 for external debt expenses. In 2024, this figure has inflated to 8.6%.
This financial reality poses a significant barrier to these countries' capacity to invest in their own future. Since 2020, debt in the developing world has been on a steady upward trajectory, while developed nations have seen more manageable growth. Interest payments in developing countries are growing at an alarming rate and are set to surpass investments in vital sectors like healthcare and education.
UNCTAD insists that developing countries should not have to make the impossible choice between meeting their debt obligations and providing for their populations. To address this issue, they propose a range of measures aimed at revamping the financial architecture, such as:
- Making global financial governance more inclusive and development-oriented.
- Improving access to liquidity and crisis financing.
- Establishing a fair and effective debt architecture, including a possible UN Framework Convention on Debt.
- Increasing the availability of affordable financing and technical support.
- Facilitating sustainable and responsible investment, particularly in digital infrastructure.
Intriguingly, Africa accounts for just 2% of global public debt, while developed countries hold more than 70%. It's clear that a more equitable global financial system is needed to ensure that the developing world can freely invest in their citizens' wellbeing.
Nonetheless, these proposed reforms face political challenges, with some high-income countries, such as the EU and the UK, countering UN-led debt reform efforts. Achieving a fair, equitable global financial architecture remains an ongoing struggle, underscoring the need for continued advocacy and cooperation among the international community.
In the midst of ballooning global debt, developing countries face mounting challenges in service of an average interest rate of 8.6% in 2024 on their external debt expenses, which outpaces investments in essential sectors like healthcare and education. UNCTAD proposes reforms to foster a more inclusive, development-oriented financial system, including measures such as improving access to liquidity and crisis financing, establishing a fair debt architecture, and increasing affordable financing for these nations.
