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‘Crushing’ debt crisis spells development disaster for billions: UN chief

A mobile money stand in Accra, Ghana.
© IMF/Andrew Caballero-Reynolds
A mobile money stand in Accra, Ghana.

‘Crushing’ debt crisis spells development disaster for billions: UN chief

Economic Development

Half of humanity lives in countries that are forced to spend more on servicing their debt than on health and education, which is nothing less than a development disaster, UN Secretary-General António Guterres said on Wednesday.

According to a new report by the UN Global Crisis Response Group, entitled A World of Debt, a total of 52 countries – almost 40 per cent of the developing world – are in “serious debt trouble”, Mr. Guterres said, backing calls for them to receive urgent fiscal relief.

Last year global public debt reached a record $92 trillion, of which developing countries shoulder 30 per cent – a “disproportionate amount”, the UN chief stressed. 

He warned that 3.3 billion people suffer from their governments’ need to prioritize debt interest payments over “essential investments” in the Sustainable Development Goals or the energy transition.

“And yet, because these unsustainable debts are concentrated in poor countries, they are not judged to pose a systemic risk to the global financial system,” the UN Secretary-General added.

‘Outdated financial system’

He insisted that the catastrophic levels of public debt in developing countries are a “systemic failure” that resulted from colonial-era inequality built into “our outdated financial system”. 

“That 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”.

Indeed, the report points out that developing countries are highly exposed to external shocks precisely because they have to service debt repayments in foreign currencies.

Africans pay four times more

The UN chief stressed that on average, borrowing costs are four times higher for African countries than for the United States and eight times higher than for the wealthiest European economies. 

Poorer nations rely increasingly on private creditors who charge “sky-high” rates and find themselves forced to borrow more “for their economic survival”, he said. 

From an important financial tool, debt has become “a trap that simply generates more debt”, Mr. Guterres deplored.

Urgent reforms

The new UN report proposes a number of urgent remedies, including an “effective debt workout mechanism” that supports payment suspensions, longer lending terms and lower rates, “including for vulnerable middle-income countries”, the UN chief said.

The report also calls for a “massive” scale-up of affordable long-term financing, by transforming the way that Multilateral Development Banks function, re-engineering them to support sustainable development and leveraging private resources. 

‘Time is up’

Mr. Guterres recalled that the Bridgetown Agenda, led by Prime Minister Mia Mottley of Barbados and the recent Summit for a New Global Financial Pact in Paris, had generated “other important proposals” regarding international debt relief, and expressed hopes that the upcoming G20 meeting in September will take some of these ideas forward. 

Check out a series of videos from our colleagues at UN Geneva highlighting how different people around the world are dealing with the current cost of living crisis: