The world is facing an alarming debt crisis that threatens to undermine the global economic recovery. Debt-at-risk is at a record high, and debt-service costs have escalated. We must make urgent reforms to our international financial systems to safeguard a prosperous future for people and the planet.
Global debt has risen to an unprecedented level, with the public sector carrying much of the burden. The rise in interest rates – which are linked to global growth and trade patterns – is a major contributor. When individuals or businesses run into financial difficulties, they may file for bankruptcy, allowing them to shed their debts and start anew. However, countries cannot do this. When a country runs into difficulty, its creditors – not a judge – decide whether or not it should be required to pay its debts.
Debt-service costs are choking developing countries. In 2023, 54 developing nations, almost half of them in Africa, dedicated at least 8% of their revenue to debt repayments. And they are borrowing at interest rates six to 12 times higher than those of developed countries.
This is a legacy of the 1970s oil-price shock and subsequent membership of the Organization of Petroleum Exporting Countries (OPEC). As OPEC limited the supply of oil to raise prices, profits piled up in commercial banks. In the quest for investments to grow their wealth, they made loans to developing countries – often hastily and without closely monitoring how the money was used. Some was squandered on unneeded or failed armaments, large-scale development projects and private projects benefiting a small elite.