A new report from the UN Trade and Development agency (formerly UNCTAD) has revealed that the sum total of all public sovereign debt was $97 trillion in 2023, a world record. Even more alarmingly, approximately one-third of that debt is owed by the poorest countries on the planet, with 3.3 billion people living in a country where debt payments now exceed spending on healthcare and education.
The report, entitled “A World of Debt: a Growing Burden to Global Prosperity”, highlights how global public debt has nearly doubled in just 12 years. In 2010, total global public debt was calculated to be $51 trillion. This figure rose to over $97 trillion in 2023, up $5.6 trillion from the year prior. A decade ago, just six African countries had a debt-to-GDP ratio above 60%, but today, that number has risen to 27 and is projected to increase.
Source: A World of Debt: a Growing Burden to Global Prosperity
See also: How perpetual public debt and repayment cycle is crippling development in Africa
Currently, half of all developing countries are forced to spend a minimum of 8% of their budgets solely to service public debt, and 54 countries have debt interest payments in excess of 10% of government revenue.
Not only is global public debt rising, but the world’s poorest countries have had to borrow money at much higher rates than wealthier countries enjoy. Last year, developing nations were forced to pay $847 billion solely in interest payments on their debt, a 26% increase from just two years ago. This is because money borrowed on international capital markets by developing nations comes with interest rates between six to twelve times higher than those available to countries such as the United States or Germany.
Due to these extreme budgetary pressures, many developing countries are now spending more on interest payments to service debt than they are on either education or healthcare. In total, 3.3 billion people on earth live in a country where debt payments are higher than spending on healthcare and education.
In Africa, governments in developing nations are spending an average of $70 per person on servicing debt but just $39 per person on health care, an issue that is negatively affecting 769 million people on the continent. In Asia, there are more than 2.2 billion people living in a country where debt payments exceed spending on education and healthcare. This issue is also true for 347 million people in the Latin America and Caribbean region.
A closer look at global public debt
While the UN Trade and Development agency’s report rightly focused on unsustainable public debt levels in poor nations, it bears noting that a significant chunk of public debt is held by developed nations. For instance, nearly a third of all global public debt ($33.4 trillion) is held by the United States, followed by China ($14.7 trillion) and Japan ($10.6 trillion).
Amongst developing nations, the countries with the highest public debt burden include Egypt ($378 billion), Mexico ($950 billion), Brazil ($1.8 trillion), and India ($2.9 trillion). Furthermore, the rate at which public debt is accruing is happening twice as fast in poorer countries as it is in developing countries, accounting for 30% of the global total in 2023. In comparison, developing countries held just a 16% share of global public debt in 2010.
Source: A World of Debt: a Growing Burden to Global Prosperity
According to the report, the root cause of the skyrocketing rate of public debt, especially in developing countries, is the very nature of international finance, which is founded on “entrenched asymmetries.” In short, wealthier nations with better credit ratings can borrow money at lower interest rates, while conversely, poorer countries are forced to borrow at far higher levels.
As of 2022 (the latest figures available), 61% of money borrowed by developing countries came from private creditors while 26% came from multilateral creditors (such as the World Bank or IMF) and 14% from bilateral creditors.
The UN warns that this growing reliance on private creditors presents three enormous challenges for developing countries. First, the “complexity” of the way private credit is structured makes it much more difficult to negotiate a lower interest rate or debt forgiveness as many more stakeholders are involved, often with different (even competing) interests and legal frameworks.
Secondly, private credit is extremely volatile and prone to rapid shifts both in availability and borrowing costs. In times of greater uncertainty, less credit is available from private sources. For instance, in 2022, when the war began between Ukraine and Russia, developing countries paid $49 billion more in debt payments than they received in new lines of credit.
Lastly, private credit is offered on commercial terms, which are far more onerous and expensive than concessional financing offered by multilateral creditors and bilateral agreements.
Short-term prosperity, long-term poverty
Compounding the issue is that many developing nations face a higher risk of civil instability, economic slowdowns, and devaluations in their currencies, which can cause debt repayment costs to spike even higher.
For example, if a developing country’s currency is devalued, that country now has to export more products in order to earn foreign currency to pay off its debts (public debt is almost always denominated in a foreign currency such as the euro or US dollar). As a result, poorer countries are increasingly forced to transfer more of their resources abroad solely to keep up with debt repayment costs.
The UN Trade and Development agency’s report found that external public debt for developing countries is now consuming 28.4% of their total GDP. Even more worryingly, the cost of servicing their debt has reached a value equivalent to 92.4% of income earned from exports.
Source: A World of Debt: a Growing Burden to Global Prosperity
For better context at just how devastating the current situation is for global prosperity, in 1953, the victorious WWII Allies agreed that Germany would be capped at 5% of its export revenues being spent on servicing its government debt precisely as a measure to avoid undermining the German economy. However, today, more than half of developing countries are allocating a minimum of 6.3% (and in some cases, over 10%) of their export revenues on servicing public debt, primarily to private creditors.
According to the UN Trade and Development agency, there needs to be a significant increase in the availability of concessional financing from bilateral and multilateral creditors, including greater use of IMF member nations’ Special Drawing Rights. Furthermore, at least 50 world leaders have called on the UN to completely overhaul the international financial architecture, and the issue of reforming this system was the number one subject of discussion at UN General Assembly meetings in 2023.
