Southern Nations Struggle Under Heavy Debt Burden
The Weighty Burden of Global Debt: A Growing Crisis
More than half of low- and middle-income countries are grappling with severe debt burdens, according to a recent analysis presented in the 2025 Debt Report. Malina Stutz, a political advisor at Erlassjahr.de, stated that this finding represents a significant concern. The organization, which publishes the report annually in partnership with Misereor, an aid organization, highlighted this revelation as a key finding.
Out of the 198 countries under review, 47 were classified as 'very heavily indebted', with these countries expected to channel over 15% of their state revenue towards debt servicing and repayments over the next three years. Consequentially, these countries may face human rights violations, as basic essentials like education, healthcare, and nourishment could see reduced funding. Extreme instances of this situation can be seen in Lebanon and Laos, both of which would need to devote an alarming 88% and 77% of their state revenue respectively towards debt repayments, thus pushing them towards a state of default. To mitigate such situations, negotiations for debt restructuring are initiated with the aim of reducing the debt burden to a manageable level. However, previous attempts at debt restructuring, as observed in Suriname and Sri Lanka, have not resulted in permanent relief for debtor countries.
The debt service for countries in the Global South reached an all-time high in 2024. Every day, more than one billion USD flows out of these countries to cater to debt service, as per Klaus Schilder, an expert in development financing at Misereor. Of the 3.3 billion people living in these countries, more than half spend more on debt service than they do on investments in education and healthcare. Kenya and Pakistan have been identified among the 47 very heavily indebted countries. Despite them striving to avoid default at all costs, their deteriorating economic landscape continues to exacerbate poverty levels. For instance, almost a quarter of state revenues in Kenya are channelled towards debt service – a figure that dwarfs allocations to the health sector. This incongruity has been lamented by Kenyan expert Collins Liko, who contributed expertise on his nation to the debt report, stating that the high debt service burden is primarily shouldered by impoverished communities in Kenya.
Additionally, fiscal policy maneuverability is severely limited in an additional 28 countries due to high interest and repayment obligations. Countries in Sub-Saharan Africa are particularly hard-hit, with 25 countries teetering on the brink of public external debt crises. A fiscal policy is considered heavily indebted if debt service accounts for at least 10% of government revenue, and very heavily indebted at 15% or more. In comparison, Germany's debt service comprises just 3.8% of its government revenue, indicating a significantly lower level.
All countries globally were examined in the context of this analysis for the first time this year. The results underscored that particularly countries in the Global South are exposed to an increased risk of falling into a public external debt crisis. While many debtor countries are exerting efforts towards national reforms, these alone cannot significantly reduce the risk of crisis. The countries continue to be disadvantaged, as their access to credit financing is significantly more challenging compared to countries with higher creditworthiness, such as Germany. To create lasting solutions, it is imperative to implement strategic reforms to the international financial architecture.
The forthcoming Fourth International Conference on Financing for Development (FfD4) is expected to offer a critical platform for heads of state and government to address structural reforms in the global financial architecture. This conference is slated for June–July 2025 in Sevilla, and aims to elevate reform discussions beyond technical bodies and drive political momentum for change. The new German government has been tasked with articulating a clear stance on the implementing reform proposals from Global South countries during preparations for the Sevilla conference. A civil society campaign, "Jubilee 2025 – Turn Debt into Hope", seeks to exert pressure and transform debt into hope.
Various reform proposals are being considered, including more flexible and targeted allocations of Special Drawing Rights (SDRs), stronger but less intrusive credit facilities, and innovative financing mechanisms like blended finance, green bonds, and climate-linked debt relief. Additionally, there are calls for increased governance reforms at the IMF and World Bank, including greater representation for Global South countries. Ultimately, the international financial system's responsiveness, equity, and support for sustainable development in light of escalating debt burdens in the Global South remains the core objective of these proposals.
- The growing debt crisis in low- and middle-income countries, as revealed in the 2025 Debt Report, is a matter of concern for the business, finance, and political sectors, as well as the general-news, given its potential impact on human rights and development.
- The forthcoming Fourth International Conference on Financing for Development (FfD4) in Sevilla, 2025, is essential for addressing the structural reforms needed in the global financial architecture to alleviate the debt burden in the Global South, a pressing issue in business, finance, politics, and general news.
