Forcing poor nations to prioritise debt payments over social investments is a 'disaster,' says UN chief
United Nations Secretary-General António Guterres has warned that "half our world is sinking into a development disaster, fueled by a crushing debt crisis," and called for urgent fiscal relief. Reported by Kenny Stancil for Common Dreams.
Citing a new report published by the U.N. Global Crisis Response Group on Food, Energy, and Finance (GCRG), Guterres pointed out that "some 3.3 billion people—almost half of humanity—live in countries that spend more on debt interest payments than on education or health."
"And yet, because most of these unsustainable debts are concentrated in poor countries, they are not judged to pose a systemic risk to the global financial system," said Guterres. "This is a mirage."
In Guterres' words: "3.3 billion people is more than a systemic risk. It is a systemic failure. Markets may seem not be suffering—yet. But people are."
"It is one result of the inequality built into our outdated global financial system, which reflects the colonial power dynamics of the era when it was created."
As the U.N. detailed in a separate Wednesday report, the Covid-19 pandemic, wars, and the fossil fuel-driven climate emergency have pushed an additional 122 million people into hunger worldwide since 2019, with an estimated 735 million people suffering from a lack of food as of last year. In terms of nutrition, more than 3.1 billion people around the globe were unable to afford a healthy diet in 2021—nearly the same number who live in nations compelled to prioritize debt repayment over social welfare.
According to the GCRG's report, A World of Debt: A Growing Burden to Global Prosperity, such problems are indeed connected. That's because, as Guterres noted, "some of the poorest countries in the world are being forced into a choice between servicing their debt, or serving their people."
"They have virtually no fiscal space for essential investments in the sustainable development goals or the transition to renewable energy," said Guterres.
Governments' domestic and external debts have been rising for decades, and "cascading crises in recent years triggered an acceleration of this trend," the GCRG analysis observes. Global public debt hit a record high of $92 trillion in 2022, of which low- and middle-income countries hold roughly 30%.
Public debt has increased at a faster rate in the Global South than in the Global North over the past decade due to "growing development financing needs"—made worse by the coronavirus, cost-of-living, and climate crises—and because "an unequal international financial architecture makes developing countries' access to financing inadequate and expensive," says the report.
Amid this combination of soaring needs and lack of access to affordable sources of financing, the number of nations facing high levels of debt has climbed from 22 in 2011 to 59 in 2022.
"A growing share is held by private creditors who charge sky-high interest rates to many developing countries," Guterres lamented. "On average, African countries pay four times more for borrowing than the United States and eight times more than the wealthiest European countries."
As the U.N. chief noted, "It is one result of the inequality built into our outdated global financial system, which reflects the colonial power dynamics of the era when it was created."
"On average, African countries pay four times more for borrowing than the United States and eight times more than the wealthiest European countries."
A handful of wealthy countries established the so-called Bretton Woods system—comprised of the International Monetary Fund and the World Bank Group—near the end of World War II, prior to decolonization. The United States and Europe continue to play an outsized role in shaping both institutions, which have imposed "structural adjustment" programs that inflict austerity and privatization in impoverished nations throughout the neoliberal era.
"The system has not fulfilled its mandate as a safety net to help all countries manage today's cascade of unforeseen shocks—the pandemic; the devastating impact of the climate crisis; and the Russian invasion of Ukraine," said Guterres.
The report explains how borrowing in foreign currencies increases developing nations' vulnerability to external shocks and makes it harder to repay debt. In addition, the report shows, low- and middle-income countries' reliance on private creditors makes borrowing more expensive and debt restructuring more complicated.
"Debt is an important financial tool that can drive development and enable governments to protect and invest in their people," Guterres stressed. "But when countries are forced to borrow for their economic survival, debt becomes a trap that simply generates more debt."
The report provides "a roadmap to finance sustainable development." It consists of three areas of multilateral action:
- 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.
"Deep reforms to the global financial system will not happen overnight," Guterres acknowledged. "But there are many steps we can take right now."
"Action will not be easy," he added. "But it is essential and urgent... Time is up for 3.3 billion people."
Wednesday's report echoes a May analysis from Oxfam International, which found that despite owing low- and middle-income countries $13.3 trillion in unpaid development aid and climate funding, wealthy Group of Seven nations and their rich bankers are now demanding a combined $507 billion in debt repayments from the developing world through 2028. Like the GCRG, Oxfam emphasized that the large sums of money currently allocated to debt repayments—collectively totaling about $232 million per day—could be better spent on healthcare, education, climate action, and more.
Last week, the U.N. calculated that the investment gap for meeting its sustainable development goals grew from $2.5 trillion per year in 2015 to more than $4 trillion per year in 2022. The body's trade agency noted that debt relief provides one way for wealthy countries to help close this huge funding shortfall.
Ahead of last month's Summit for a New Global Financing Pact held in Paris, more than 140 economists and policy experts implored the leaders of rich countries to fight the life-threatening crises of climate change and inequality through the downward redistribution of trillions of dollars in public money, including via the cancellation of the Global South's external debts.
Although the stated aim of the meeting was "to build a more responsive, fairer, and more inclusive international financial system," global justice groups condemned delegates afterward for their lack of progress toward fulfilling that goal.